The EU’s recent adoption of new methane regulations is a seminal moment for the global LNG industry. The bloc is the world’s biggest importer of LNG, and imported over 120 billion cubic metres (bcm) last year. The EU’s decision to require monitoring, and to ultimately limit the emissions from these imports will have a huge impact on U.S. LNG producers, who collectively supplied nearly 50% of the EU’s total LNG imports in 2023.
The new rules mean that both suppliers and buyers need to manage the multiple forms of risk – including compliance, corporate, and reputational factors – by incorporating the consideration of emissions into their long-term contracts, as well as take this into account for trades made on the spot market.
Methane is one of the most potent greenhouse gases over the short-term, and the EU’s new regulations are a clear indicator that governments see limiting these emissions as a powerful lever in the fight against climate change.
Though the specific benchmarks and penalty system are yet to be published, what we do know is that producers must begin complying with EU regulations in March 2025, and have until January 2027 to adhere to the rules or run the risk of being penalized, or potentially even of being blocked from the EU market.
Companies therefore need to prepare now.
Consideration of these regulations need to be a top priority for risk and regulatory teams for oil and gas producers and the LNG sector.
For LNG buyers and traders, the regulatory changes present both a challenge and an opportunity. Incorporating emissions considerations into long-term contracts should become a central part of companies’ risk management strategies, because the cost of non-compliance is likely to be substantial, including potential penalties, and reputational damage. By addressing emissions up-front in contracts, companies can mitigate these risks, demonstrate proactive compliance, and highlight their commitment to emissions performance.
Consider a European utility about to sign a 10- or 15-year LNG contract. Given the reasonable expectation that methane regulations will impose fees and disclosure requirements by 2030, it makes little sense to ignore emissions now. Utilities must recognize that stakeholders and society at large increasingly expect transparency and accountability around the environmental impact of the LNG they are buying. Failure to address these issues could result in significant financial and reputational costs.
I spent nearly two decades trading natural gas and LNG in Europe, and learned very quickly that managing downside risk is paramount in negotiating these commercial contracts. While the commercial and pricing aspects of a contract might take 10% of the time, the remaining 90% is dedicated to foreseeing and addressing legally potential risks – credit risks, delivery risks, force majeure clauses, market change risks, safety risks, reputational risks, and now, emissions risks.
Leaders of trading teams need to recognize that emissions should be given the same level of scrutiny and attention as any other potential risk in the contract negotiation process.
This extends beyond Europe. Major LNG buyers in Japan, South Korea, and other significant markets such as China are also examining how to limit emissions from imported gas. Producers and LNG exporters need to be aware of the risks of inaction: Companies that fail to adapt will find themselves at a significant disadvantage.
Incorporating emissions considerations into contracts can take various forms, including clauses that stipulate emissions disclosure, mechanisms for monitoring and reporting emissions, and penalties for non-compliance, potential emissions reductions. These provisions not only align with regulatory requirements but also position companies as leaders, giving them a competitive edge in an increasingly environmentally-conscious market. Credible methane standards and certificates can include all the necessary elements to comply with the EUMR.
MiQ has been anticipating the arrival of EU regulations for several years. Our holistic certification and verification program is currently the only methane performance standard which offers natural gas producers and LNG exporters a clear pathway to be in compliance with the new regulation. LNG buyers seeking to minimise risk, prepare for the new regulations, and take advantage of opportunities can choose MiQ-certified gas to prepare for compliance