Could EU methane guidelines threaten power safety? | USAEMALL.com

Hello and welcome back to Energy Source, coming to you from Washington, where energy executives are preparing for a major policy shake-up under the incoming administration of Donald Trump.

One of the first big changes flagged by the president-elect is the lifting of the Biden administration’s pause on approvals of new liquefied natural gas terminals, according to a story by my FT colleague Alexandra White.

S&P Global forecasts LNG export capacity could double over the next five years, providing a $1.3tn boost to the US economy.

Another story we have been following closely is the Biden administration’s imposition of sweeping sanctions against Russia’s energy sector and US-based companies continuing to do business in the country.

Pressure is mounting on SLB, the world’s biggest oilfield services company, to exit Russia, as congressmen and legal experts warn the company should leave now to ensure it doesn’t breach sanctions.

Our main item today focuses on Europe’s methane regulation and whether it will stymie the continent’s ability to import LNG. — Jamie

EU methane regulation: climate ambitions vs energy security

As the industry leaders in the liquefied natural gas sector gathered in Berlin for an annual conference in early December, one topic was on everyone’s lips: the EU’s methane regulation and how it could impact the bloc’s ability to import LNG.

The regulation, which came into force last August, is aimed at all forms of fossil fuels, introducing requirements for importers to report detailed methane-related data on the fuel they bring into the bloc. Annual reporting starts in May, and down the road, imported fossil fuels will need to be below a certain methane intensity threshold. Failing to comply could lead to a maximum fine of 20 per cent of annual turnover.

The LNG industry realises methane is a huge contributor to climate change, and an issue the sector needs to address. But the regulation, they argue, is ambiguous in its current state with some requirements extremely difficult to implement, which could hinder the ability of European companies to import the fuel.

“The methane regulation in general is a good thing,” Ralf Dickgreber, head of global LNG and biomass at France’s Engie, told a panel at the World LNG Summit in Berlin. But “we don’t know exactly how to interpret the rules out there . . . How to comply with it is very difficult at this stage.”

A major sticking point comes from the fact that the methane data needs to be collected at the producer level. In LNG, this would refer to the entity that actually extracted the natural gas from the ground, before it is liquefied and shipped.

The issue is that LNG facilities rarely source their feed-gas from a single wellhead. In the US, the single largest supplier of the super-chilled fuel for the EU, it is sourced from a co-mingled gas grid or natural gas aggregators.

An importer “genuinely cannot get the producer-level data that the EU methane regulation demands, as each molecule of gas cannot be tagged or tracked back to the wellhead, so the relevant producer cannot be identified,” said Alex Kerr, partner at the law firm Baker Botts.

“If it is impossible to comply with the regulation, importers will struggle to sign off on relevant LNG sales and purchase agreements, especially given the potentially material fines that may be imposed and the potential reputational damage,” he said.

In some cases negotiations have been delayed or paused, while the parties sought more clarity on the regulation, Kerr added.

One potential solution could be to deploy a “certificate of origin” scheme such as in the renewable energy sector, called RECs or GOs, according to Georges Tijbosch, chief executive of MiQ, a not-for-profit organisation providing methane emission certification standard.

“In that world, it is totally acceptable that if a windmill injects 10MW/h in electrons into a co-mingled system, and a data centre lifts it somewhere else 5,000km further, as long as that is balanced in the same co-mingled area, and is checked, verified and all that, we accept that,” he said.

Such a solution is “practical”, Kerr said, but a strict reading of the legislation requires a tracking of molecules all the way back to the wellhead.

“The current wording of the regulation does not provide for a mass balance or book and claim system,” he said.

Revising the regulation to allow for such solutions would be “a sensible step” to prevent the regulation “inadvertently causing a security of supply issue for the EU”, he added.

Tijbosch said the legislation “doesn’t rule [the solution] out explicitly and it doesn’t rule it in explicitly either”.

He said Brussels “is saying it is up to the industry to come up with proposals, as opposed to ‘I’m going to spell out what you must do’.”

The methane regulation isn’t the only new set of environmental rules the EU has implemented that is causing concern in the LNG world. Qatar late last year threatened to stop sending the fuel to the bloc if member states strictly enforce new legislation that will penalise companies that fail to meet set criteria on carbon emissions and human and labour rights.

“It’s good to foster commitments” to environmental standards, Maria Rita Galli, chief executive of Desfa, a natural gas transmission system operator in Greece, told the panel. “But at the same time, Europe needs LNG and it needs to be very careful about creating obstacles about sources of LNG, otherwise we will be back in, a few years time, to shortages.” (Shotaro Tani)

Power Points

• The US is set for a natural gas power plant construction boom, as Big Tech turns to fossil fuels to meet soaring power demand from artificial intelligence.

• Venture Global, one of the biggest US LNG exporters, is seeking to go public at a valuation of $110bn, as the industry prepares for a potential export boom under Donald Trump’s administration.

• EU shipyards are repairing Russian ice-class tankers, enabling Moscow to continue moving gas through the Arctic despite western sanctions on its energy sector.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.