Methane law brings UK into EU’s orbit

The European Union has finally signed into law flagship legislation on energy sector methane emissions, but delays left little time for implementation and there is still much work to do.

While the legislation itself won approval from both EU lawmakers and member states this spring, there is a lot of uncertainty about how it will work in practice.

Big decisions around international harmonisation of regulatory standards are yet to be made, and the next steps will have major implications for countries that export oil and gas to the EU – including the UK.

The long and winding road

The legislation is years in the making. Its basis was the European Commission’s methane strategy, published in 2020, which laid the groundwork for addressing methane emissions from the three main anthropogenic sources: agriculture, fossil fuels and waste.

While agriculture has a higher share of these emissions – 40-53%, according to the European Environment Agency – Brussels prioritised crafting rules for fossil fuels, with a smaller share of 19-30%, because it concluded that action here could yield results faster.

Can you imagine the chaos it would bring if you cannot certify gas from the UK [entering the EU]?

Anne-Sophie Corbeau, CGEP

The Commission published its legislative proposal for methane emissions from the energy sector in late 2021. What followed was protracted disagreement between EU lawmakers and member states on how tough the rules should be.

EU parliamentarians generally favoured stricter requirements and member states laxer ones. One of the main areas of dispute was rules for imported fuels such as liquefied natural gas (LNG).

The whole process also faced delays because of other priorities – first a global pandemic, then the return of war to Europe and a resulting energy crisis.

Following years of efforts, the European Parliament adopted the law in April and the European Council followed suit in May. The challenge now is that legislators have very little time to fill in the gaps before the deadlines for requirements under the law, including those for oil, gas and LNG imports.

Down to the nitty-gritty

The legislation, due to come into force in early July, introduces new measurement, reporting and verification (MRV) rules on domestic energy operators. This includes surveys on leaks at different types of infrastructure at set intervals, deadlines for repairing leaks, and a ban on venting and flaring from drainage stations by 2025 and from ventilation shafts by 2027.

Source-level reporting of emissions will be required – after June 2025 using generic emissions factors, and after December 2025 using more specific emissions factors.

Emissions factors can provide a good overview of emissions. But they often rely on outdated data and have been shown to be in some cases highly inaccurate when compared with measurements taken at a specific site using methods such as cameras, various sensors and high-resolution satellites. As such, the new law will require these site-level measurements at operated assets by the end of December 2026, and 18 months later for non-operated assets.

Harmonisation across markets

The EU standards will be applied to oil, gas and coal import contracts that came into force after January 2027. This means the EU will have to assess whether MRV regulation in supplier countries is equivalent or even exceeds its own.

How it will do this remains unclear. Even with countries that have well-developed methane regulation such as the US, there is variation in the rules that would have to be harmonised.

The MRV equivalence in the EU legislation requires MRV measures at the level of the producer. But US LNG exporters receive gas from multiple producers, often procured from trading hubs such as Henry Hub.

This makes methane measurement more complex than for a conventional LNG project sourcing gas from one field, Anne-Sophie Corbeau, global research scholar at Columbia University’s Center on Global Energy Policy, tells E-FWD.

A template for compliance

The law does state that MRV standards can be considered equivalent to those of the EU if they meet the Oil and Gas Methane Partnership (OGMP 2.0) Level 5 requirements, and with third-party verification.

For countries with laxer rules, simply adopting the EU regulation or OGMP 2.0 may be the simplest option but that does not mean it would be simple. For some, poor corporate governance and insufficient technology and expertise might hinder the process.

Furthermore, the law requires that importers must make “all reasonable efforts” to bring supply contracts that began before January 2027 into compliance. But what constitutes such efforts is open to interpretation.

The legislation does allow suppliers to the EU to get exemptions from the rules if they are too difficult or time-consuming to implement. Again, this loophole is open to interpretation.

There should be independent accreditation bodies to verify all data, but it is unclear yet which entities will fulfil this role, and there is a limited pool of potential ones globally. Given the scale of the undertaking, this sector will have to be scaled up significantly.

“You will need many people to be trained, to go to all these sites, and you need to ensure that these individuals maintain the highest standards of integrity and impartiality,” Corbeau says.

Tight schedule

Under the legislation, the EU will set a maximum methane intensity allowed for oil, gas and coal imports from June 30, 2030. But there is a lot of work to do in the meantime.

First, it has to set out a methodology for calculating producer-level methane intensity by June 30, 2027. A year later, importers will have to report on the methane intensity of supplies under contracts concluded after the legislation came into force next month, and, again, undertake “all reasonable efforts” to align previous contracts accordingly.

By June 30, 2029, the Commission will need to produce a report assessing the impact of various maximum methane intensity values, taking into account the impact on global efforts to reduce emissions as well as the bloc’s energy security. These are the deadlines set in law.

Cap in hand

There is also a lot riding on the EU finalising its methane intensity cap as quickly as possible. The longer it takes, the less time third-party countries and companies have to ensure their intensity is below the threshold.

The European Parliament already floated a 0.2% cap in May 2023 for upstream emissions, which would align with the goal of the Oil and Gas Climate Initiative (OGCI), which includes 12 of the world’s largest oil and gas companies. But this target was not included in the law. Brussels may decide to eventually adopt it, as this would support global alignment, but it may opt for its own target instead.

By applying its rules to imports, the EU is pushing other oil and gas suppliers to adopt its standards. But it is unclear what happens if they fail to do so. The law states that penalties are capped at 20% of annual turnover in the preceding business year or 20% of yearly income in the preceding calendar year, but enforcement is up to member states. Those that are less inclined to punish their energy suppliers due to energy security may impose symbolic fines or no fines at all.

Corbeau is unsure whether the EU alone can affect global changes on methane emissions, suggesting that other major importers like Japan should introduce the same standards to move the needle.

The UK perspective

Though a net importer of both oil and gas, the UK primarily exports both fuels to the EU, while importing oil from countries like Norway and the US, and receiving gas from Norway and LNG from global suppliers. The UK would likely have to develop rules for methane emissions from the energy sector that align with EU standards to continue this trade relationship in the years to come.

The UK currently lacks MRV standards or a limit on methane intensity, and although there are restrictions on flaring and venting – operators need permits to do so – there is no legal deadline for the routine use of these practices to be eliminated.

The North Sea Transition Authority has a non-binding target in place for eliminating them, and only by 2030. The UK is also yet to finalise a timeframe for including methane emissions in its Emissions Trading Scheme.

The fact that the molecules of oil and gas that the UK delivers to Europe are a mix of both domestic production and imports also raises the question of how it might prove that this mix complies with EU legislation. The solution may lie in developing its own standards for imports in line with the EU ones.

“Given how closely integrated the UK is in the EU system, it would make sense to be aligned. I don’t think they are fundamentally far away from the EU in terms of thinking,” Corbeau says. “And can you imagine the chaos it would bring if you cannot certify gas from the UK?”

Norway sitting pretty

Norway, by contrast, is in a comfortable position. The Norwegian continental shelf boasts among the lowest methane emissions intensities for its oil and gas sector in the world, as a result of years of stringent regulation.

State-owned producer Equinor for example estimates intensity at its operated upstream and midstream assets at 0.02%, or around one-tenth of the global industry average. Regulation includes a tax on methane emissions – currently priced at $130 per 1,000 cubic metres – and strict rules minimising flaring and venting, allowing it only for safe reasons during normal operations.

This puts the country, now Europe’s biggest gas supplier, in likely the best position among its main competitors to meet any future EU intensity caps. Still, Norway would still have work to harmonise its MRV and leak detection and repair standards in line with EU ones.

Alternatively, individual oil and gas exporters could adopt the standards through participation in OGMP 2.0. Leading players such as Equinor and Var Energi are already taking part in the initiative.