Europe Wants Cleaner Gas. Can the United States Provide It?
U.S. liquefied natural gas (LNG) has been essential to global energy security since Russia’s invasion of Ukraine. But environmental organizations worry that building LNG import terminals and gas infrastructure will “lock in” fossil fuel consumption, and some are suspicious about the environmental footprint of U.S. gas exports. For now, the European Union cannot afford to be choosy about alternatives to Russian gas, and concerns about emissions intensity have taken a back seat. But European buyers intend to seek “cleaner” or less emissions-intensive gas in the years to come. New methane regulations in the United States should help address these concerns and bolster the case for U.S. LNG.
The U.S. Environmental Protection Agency (EPA) is finalizing new rules on methane emissions from the oil and gas sector. These regulations would require monitoring for leaks at all well sites, establish tough emissions standards for certain equipment, impose new rules on gas flaring and venting, and incentivize companies to use advanced methane detection technology. The EPA is also drafting new greenhouse gas reporting requirements linked to the Inflation Reduction Act (IRA) methane fee, which will apply to emissions above a certain level of methane intensity for upstream production as well as nonproduction petroleum and natural gas systems. The IRA requires the agency to update its greenhouse gas reporting requirements for petroleum and natural gas systems by August 2024, to ensure their reporting “is based on empirical data and accurately reflects total methane emissions.” The EPA aims to finalize its oil and gas methane regulations by this summer, and it may provide guidance on new reporting requirements for oil and gas facilities (under Subpart W of the Greenhouse Gas Reporting Program) by this fall.
Add it all up, and new regulations should drive methane reductions from producers, pipeline operators, and others in the gas value chain. Companies will also have to greatly improve the way they monitor, report, and verify their methane emissions. It will be challenging for oil and gas companies to implement these rules, and there are costs associated with emissions reductions. But these requirements will strengthen the case for “cleaner” or less emissions-intensive LNG supplies from the United States.
These regulatory efforts align with international engagement on greenhouse gas reductions. At the 27th 2022 UN Climate Change Conference (COP27), a joint declaration between energy importers and exporters committed to reduce methane, carbon dioxide, and other emissions from the oil and gas value chain. In April, the U.S.-EU Energy Council extended these goals, aiming to “develop an internationally aligned approach for transparent measurement, monitoring, reporting, and verification for methane and carbon dioxide emissions across the fossil energy value chain.” The Department of Energy and the State Department have now pulled together a working group on these issues involving some 20 countries.
It is still early days for these efforts, and the underlying challenges are not easy to solve. One example is methane measurement, reporting, and verification (MRV) standards. At present, companies looking for ways to improve emissions accounting must make sense of industry protocols, a global reporting framework called the Oil and Gas Methane Partnership (OGMP 2.0), voluntary gas certification schemes and emissions registries, and frameworks for LNG cargo emissions accounting. Each has merit but none has universal approval, although the European Union’s proposed methane legislation strongly supports OGMP 2.0. Even if one gold standard were to emerge, policymakers are underestimating the difficulty of integrating methane measurement data from various sources such as satellites and aerial surveys. Some segments of the LNG value chain such as shipping could prove especially challenging.
Despite this complexity, there is real momentum behind efforts to analyze emissions across natural gas supply chains. The United States and the European Union aim to improve “the accuracy, availability, and transparency of emissions data at cargo, portfolio, operator, jurisdiction, and basin-level.” And one of the most significant parts of proposed EU methane legislation is the call for an import standard. The European Parliament has proposed that by 2026, all natural gas suppliers should follow the same requirements as EU companies—including rules for MRV, flaring and venting, and leak detection and repair. This is not final legislation; the Parliament must negotiate with the European Commission and the Council of the European Union to reach agreement on a joint text. But it if passes, the European Union will create the strongest demand pull to date for lower-emissions gas.
What does this mean for U.S. LNG producers? To be clear, this will not turn the industry upside down. This is still a relatively tight LNG market in which the United States and Qatar are the two key sources of supply growth in the coming decade. If Europe finds itself in a more difficult position next winter with tighter supplies and high prices, energy security concerns will trump emissions considerations. In that case, enforcement of an EU import standard (if approved) could weaken, and Brussels and EU member states may be forced to allow exceptions. It is also far from certain that gas buyers in Asia will follow Europe’s lead in demanding “cleaner” gas. For now, price, volume, and other commercial terms drive long-term LNG sales agreements, and emissions intensity is not yet part of the equation.
Still, concerns about emissions intensity will grow in the coming decade, and U.S. LNG suppliers would be wise to put the pieces in place to help meet evolving buyer demands. New EPA reporting requirements will go a long way toward satisfying demands in Europe—and potentially other regions—for rigorous, measurement-informed emissions accounting. Other suppliers such as Qatar have advantages in meeting potential gas import standards, because in contrast with the United States, a single company may be present in the entire LNG value chain from production through liquefaction and even shipping. But the United States has a unique confluence of factors that support rapid emissions reductions and better transparency: investor and shareholder pressure for methane reduction plans, new regulations, and rapid innovation in methane detection technology and quantification.
If U.S. LNG exporters marshal their creativity and capital to help drive down emissions, it will create positive spillover effects throughout the gas value chain. These changes will make for a more resilient industry in a climate-conscious world, helping to safeguard the role of natural gas in the energy transition and strengthen the U.S. LNG export industry.
Ben Cahill is a senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
This commentary was made possible by support from Cheniere, as part of a project on alignment between U.S. and EU regulations on methane emissions.