Hai Zhang | MEL Candidate | December 3, 2024
Mentor: Max Mucenic, S&P Global Commodity Insights
ABSTRACT
This report evaluates methane policies in the U.S. and the EU, focusing on strategies to manage emissions and their implications for global LNG trade. The EU’s Regulation 2024/1787 and U.S. initiatives, such as the EPA’s methane reduction policies, establish stringent requirements to curb emissions across the energy sector.
Scenario analyses compare methane intensity for LNG derived from municipal solid waste (MSW) biogas versus conventional natural gas, highlighting the impact of policy assumptions. The EU’s standards are poised to reshape LNG markets, favoring suppliers with effective methane management and prioritizing transparency and technological investments. Additionally, this report also examines the regulations’ effects on end-users and incorporates updates from the U.S. Department of Energy’s October webinar on its MRV framework. These insights emphasize the dynamic evolution of methane policies and their significant influence on global energy markets, supply chains, and sustainability efforts.
INTRODUCTION
The U.S. EPA methane rule and the EU methane regulations have recently been announced, affecting both domestic energy markets and international oil and gas trade dynamics. Given the significant variation in methane intensities across different gas supply chains, these regulations will have unequal impacts on operators. The objective of this project is to evaluate these new methane policies across the U.S. and Europe and analyze their implications on the global trade of LNG.
However, the incoming Trump administration has signaled a sharp departure from Biden-era methane and climate policies. President-elect Trump has reiterated his intention to withdraw the U.S. from the Paris Agreement once again and is expected to roll back many Biden initiatives targeting methane emissions, such as the recently finalized “Waste Emissions Charge”, which imposes fees on excessive methane emitters in the oil and gas sector.
Figure 1: EU Import Reporting Timelines, GHGSAT
METHODOLOGY
The calculation methodology for Scenario Analysis will incorporate source-level measurements and aim to align with the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) standards. Methane intensity here is defined as the ratio of methane emissions to the quantity of gas produced and marketed, accounting for any emissions released during upstream and midstream operations (according to NGSI).The analysis evaluates the methane emissions across the lifecycle of LNG produced via two production routes for comparison: 1) from a waste-to-biogas project, and 2) from conventional natural gas. Both supply chains take place in the U.S. for transport to the EU.
In 2023, 55 million tons of LNG was shipped from U.S. to EU. The United States shipped a record 56.9 million metric tons of LNG during the first eight months of 2024, according to Kpler. It forecasts 90 million tons LNG will be exported to EU by the end of the year.For ease of calculation, we will examine the methane intensity of 10 million tonnes of LNG of this kind shipped from a US port to the EU.
RESULTS AND DISCUSSION
We observe that the methane intensity of the MSW sector exceeds that of the LNG industry. This section explores the underlying reasons for this disparity and highlights the sensitivity of methane intensity to each stage in the supply chain.
Impacted companies from various countries will need to take action to comply with the new EU methane reporting and mitigation requirements, typically involving various corporate departments such as tax, legal and finance. It will be imperative to establish internal methane reporting procedures before the regulation takes effect. Additionally, EU importers will need to revise contracts based on data collected from exporting partners.
Table 1: Scenarios Comparison for Methane Intensity
Figure 2: Scenarios Comparison for Methane Intensity Sensitivity
CONCLUSION
The EU’s approach is more comprehensive and stringent, with its mandatory reporting and emphasis on influencing global methane emissions through trade and policy. In contrast, the U.S. EPA’s rules are stringent in their technological requirements but are more narrowly focused on domestic oil and gas operations.
The uncertainties and gaps of the regulations pose substantial issues for both producers and consumers attempting to better track and reduce methane emissions across the natural gas value chain.
In terms of their influence on end users and individuals, these regulations will contribute to environmental and health benefits, potentially lead to increased energy costs, and improve transparency.
REFERENCES
Colman Z. (2024). Exxon’s chief has a warning for Republicans. POLITICO. https://www.politico.com/news/2024/11/12/exxon-ceo-us-climate-policy-00188927
EPA Finalizes Rules to Reduce Wasteful Methane Emissions and Drive Innovation in the Oil and Gas Sector. (2024). EPA Press Office. https://www.epa.gov/newsreleases/epa-finalizes-rule-reduce-wasteful-methane-emissions-and-drive-innovation-oil-and-gas
EU methane rules: impact for global LNG exporters. (2024). CSIS. https://www.csis.org/analysis/eu-methane-rules-impact-global-lng-exporters
EU’s first-ever methane clampdown regulation becoming law of the land. (2024). offshore energy. https://www.offshore-energy.biz/eus-first-ever-methane-clampdown-regulation-becoming-law-of-the-land/
Fast action on methane to keep a 1.5°C future within reach. (2024). Global Methane Pledge. https://www.globalmethanepledge.org/
Maguire G. (2024). US LNG export dominance tested as Europe’s demand wilts, Reuters. https://www.reuters.com/markets/commodities/us-lng-export-dominance-tested-europes-demand-wilts-maguire-2024-09-04/
CONTACT
Hai Zhang
Email: cheungharold17@gmail.com