EU methane law, US emissions stance challenge LNG sector

By Corey Paul and Matt Hoisch  spglobal.com

HIGHLIGHTS

EU law on imported fuels opposed by White House

Regulation carries implications for LNG trade, emissions reporting

US industry faces compliance uncertainties

EU officials are sticking by a first-of-its-kind methane emissions regulation on imported fuels, despite pushback from the Trump administration. As the trading partners spar over the rules, the US natural gas industry faces significant uncertainty about what US LNG sellers and buyers will need to do to comply.

The White House has specifically taken steps away from emissions tracking domestically, focusing instead on expanding US LNG exports and easing oversight.

At the same time, global buyers continue to express a desire for cleaner supply, and available data keeps improving.

How the European methane regulation gets refined and implemented will carry implications for the future of US LNG flows to Europe and for emissions reporting.

The regulation aims to reduce energy sector methane emissions in Europe and across its global supply chains. But the European Commission has yet to define many details about what will be required under the law ahead of a key compliance deadline.

Starting Jan. 1, 2027, the regulation will require importers of LNG into the EU to prove their gas meets the same monitoring, reporting and verification standards imposed on EU producers — or face penalties.

"That's where this gets difficult, because it's no longer an option," said Max Mucenic, an analyst for the Center of Emissions Excellence at S&P Global Commodity Insights. "There's so much uncertainty still, and 2027 is not that far away."

The EU rule's requirement to provide data "at the level of the producer" could be particularly challenging for US LNG exporters.

Unlike most of the rest of the world, US LNG export facilities source gas from a vast pipeline network. Supplies are commingled, including volumes sourced from different production basins with varied methane intensities.

EQT, one of the biggest US upstream producers, said the fundamental problem is the structural differences between the US gas system and the EU's reporting requirements.

The company, which is building a US LNG export portfolio, has questioned its own ability to comply — even though EQT has reported achieving the highest standard for the past four years under the Oil and Gas Methane Partnership 2.0 (OGMP 2.0), a measurement-based reporting initiative created by the UN Environment Program.

The EU methane regulation does not define what information importers will be required to present, but it refers to the possibility of demonstrating equivalency with the EU standards through compliance with OGMP 2.0.

"The rules as currently designed make it impossible for any US operator, even ones like EQT, to have confidence that they will qualify," said Will Jordan, EQT's chief legal and policy officer. "The needed clarity will not come until the rules are revised to address the realities of the US natural gas value chain."

Uncertainty about the implementation of the EU's methane regulation is already pushing European gas and LNG market participants to curtail some contract negotiations, according to Andreas Guth, secretary general of industry group Eurogas. 

"How do I assess the risks and liabilities for future compliance with rules that are yet unknown or where I simply don't know how to comply with them?" Guth said. "Factoring that into the contract negotiations increases uncertainty quite significantly."

In the US, a broader deregulatory push by the Trump administration could make it harder for market participants to satisfy the EU regulation, analysts said.

Administration actions include a recent proposal to end reporting obligations for oil and gas companies under the US Environmental Protection Agency's Greenhouse Gas Reporting Program, an important baseline for emissions reporting.

"It provides consistent, harmonized requirements for natural gas producers in the United States, and then they can point to those reports that they've made," said Mariam Al-Shamma, director of carbon management and energy systems at the Washington-based think tank Bipartisan Policy Center. "If you don't have that program in place, you need to turn to third-party verifiers and establish your own independent system."

Doing so adds cost and complexity that could create barriers for some US market participants in accessing the European market, Al-Shamma said.

'Removing irritants'

During a visit to the EU in September, US Energy Secretary Chris Wright critiqued a suite of EU laws, including the methane regulation.

"If you want to move US natural gas into the European Union, you've got to change the legal regulatory framework," Wright said. 

The secretary said there was "agreement on both sides that [with] the regulations as they are written now, you would not see any more US LNG coming to Europe — none. None. So, yes, those laws have to be fixed." 

The US is the EU's top LNG trade partner. In 2024, it supplied the bloc with about 36.6 million mt of the fuel, according to data from Commodity Insights. Since 2022, the majority of US LNG cargoes have been flowing to Europe.

Experts say both trading partners have a shared interest in making sure US LNG exports to the EU continue.

And the EU has publicly signaled a willingness to work with market participants to smooth the implementation of the regulation.

In recent weeks, European Commission Director General for Energy Ditte Juul Jorgensen has said she was confident that Europe can implement its methane regulation "in a way that doesn't constitute an irritant in any way."

Attendees of the global Gastech conference in Milan received a similar message earlier in September.

"It's positive that the Europeans are there and the European Commission is there, talking about 'removing irritants'," said Charlie Riedl, executive director for the DC-based trade group the Center for Liquefied Natural Gas. "But what we didn't hear, and what I think we're all eager to hear, is, what's the timeline for doing that, and how are you actually going to do it."

Researchers at the University of Texas recently announced a 60-day global consultation process for a proposed methane verification and reporting protocol designed to satisfy requirements of the EU regulation.

They are collecting input by mid-November to revise and finalize the protocols by the end of the year.

"We can do this. It is possible to assemble data on emissions across supply chains," said Ben Cahill, director of energy markets and policy at the University of Texas' Center for Energy and Environmental Systems Analysis. "It's just a question of what the European Commission and the member states will accept, and how they communicate that to LNG sellers from the United States and other countries around the world."

US deregulatory push

The law allows for a regulatory exemption for supply countries that can provide data showing their LNG is subject to requirements at least as stringent as the EU rules.

Biden administration officials in October 2024 sought to initiate that exemption process, something the European Commission has also yet to define.

By March, Commodity Insights analysts had described the chances of Europe declaring the entire US meets the new standards as increasingly remote.

The Bipartisan Policy Center recently released a series of recommendations for a comprehensive federal gas policy framework, making the case that the US should continue to increase the transparency and accuracy of emissions tracking and reporting.

The recommendations included that Congress direct the White House to form international gas partnerships to facilitate market access and support efforts begun in the prior administration to standardize greenhouse gas intensity measurements for natural gas.

"Individual private sector-led efforts will almost certainly continue," Al-Shamma said. "It's just that having the government there to standardize [reporting] criteria, to set measurement standards — that is positive for private actors in terms of figuring out what they need to do."