The EU Methane Regulation (MER), effective as of August 4, 2024, introduces new obligations for domestically produced and imported crude oil, natural gas, and coal. While compliance with new import requirements primarily falls on European Union (EU) importers, their ability to meet them hinges on the actions of producers and exporters. The Regulation introduced a first-of-its kind framework for MRV equivalency and a future methane intensity standard, aiming to embed imported methane emissions considerations associated with the gas placed in the Union along with penalties for non-compliance into the commercial dynamics of the gas market. The Regulation acknowledges the importance of methane reduction in meeting the European Green Deal’s objectives, and employing the EU’s market power, e.g. as the largest single bloc for gas imports to effectuate similar efforts from the EU’s trading partners. This represents a major shift from the current system, where price, quality, and delivery terms determine commercial decisions. However, the implementation of the EU methane import requirements presents considerable challenges that have not been previously addressed. To characterise them a series of interviews with market participants was conducted between May and September 2024 revealing that, while the Regulation’s adoption was anticipated, the inclusion of an import standard into the final version of the Regulation, the level of complexities associated with MRV equivalence and computation of methane intensities, were poorly understood by many stakeholders during EU legislation’s development. Comparing emissions intensities across complex supply chains remains challenging, as such assessments have not yet been conducted transparently. Key decisions shaping the EU import standard including underlying data, methane intensity methodology, and engagement with producing and exporting countries – will be made in a vastly different political and market landscape than in 2021, when the Regulation was first designed. For now, Brussels is likely to choose a wait-and-see approach, hoping that global LNG market conditions will ease over the next 2-3 years, leading to lower prices and increased supply options for European buyers. An EU import standard would introduce emissions intensity as an additional factor in these purchasing decisions and potentially changing the ‘merit order’ of EU gas suppliers. If the Commission avoids taking any binding decisions, it will likely face growing pressure from EU LNG importers – who risk paying a premium due to regulatory uncertainty or potential penalties – as well as from exporters and natural gas producers pushing for methane standards to be softened or postponed. How those engagements unfold will determine whether the Regulation will change EU priorities for gas and LNG purchases, or whether security of supply priorities will require changes to the Regulation.
