When Donald Trump returned to the White House, he did so on the promise, among others, of unleashing U.S. energy dominance. This was good news for Europe. It needed gas, and the U.S. had it. But Europe also has transition ambitions. These might now interfere with its energy security needs—or prove that security trumps any ambitions.
Last year, the European Union adopted a so-called Methane Regulation. The piece of legislation aimed at forcing producers of liquefied natural gas to reduce their methane emissions as much as possible in order to earn the privilege of supplying their LNG to European buyers. The regulation requires that producers monitor, record, verify, and ultimately reduce their methane emissions to help the planet survive.
That monitoring, recording, verifying, and reduction, however, cost additional money. In a recent opinion piece, Reuters authors suggested U.S. producers of LNG may be unwilling to spend that additional money for the sake of exporting to the European Union, especially when the latter had strict plans in place to give up gas altogether at some future point in time. It is neither the first nor the only outlet to suggest such unwillingness on the part of U.S. LNG producers. Gas liquefaction is an expensive process and every penny counts—and so does every molecule of gas.
Curbing methane emissions in the LNG industry essentially means wasting less of its product, which means producers have the motivation to invest in that curbing. Indeed, it seems this is what they are doing, based on another Reuters report that cited two industry trade groups as saying they were going to continue tracking and reducing their methane emissions despite the change in the guard at the White House.
Also, “Our members have invested tens of millions of dollars reducing their emissions all before any U.S. regulations were in place. They are committed to continuing to drive down their emissions,” a representative of a group seeking to address emissions in the LNG industry told the publication.
Yet the European Union’s ambition to give up natural gas altogether still seems to be potentially dangerous for LNG producers to some observers. The unwillingness of EU buyers to commit to long-term contracts is a symptom of this danger, they note, perhaps oblivious to recent developments in Europe.
First, there was joint gas buying. It was a short-term means of securing the European Union’s energy needs during peak demand season, and it did not work very well, only accounting for a minuscule portion of total demand, but the EU counted it as a success and plans to do it again. It also plans to invest in LNG capacity abroad to secure supply. That sure sounds like a long-term commitment.
“The European Union would “immediately engage with reliable LNG suppliers to identify additional cost-competitive imports from existing and future LNG export projects,” a draft proposal of the European Commission said, as cited by Reuters last month. The draft also said, “EU joint purchasing power should be harnessed by exploring the option of longer-term contractual engagements to make prices more stable,” evidence that long-term contracts are very much back in style in Brussels.
The question, of course, is what the EU is going to do about the methane emissions of those alternative suppliers. The question becomes especially topical in the context of its current LNG mix. While the United States is the top supplier, at number two, we find none other than Russia, which is supposed to be thwarted at every step, and purchases of Russian hydrocarbons are supposed to end within two years, and that’s without even mentioning any methane efforts.
The fact that the EU still buys so much gas from Russia is telling, and the story it tells should make U.S. LNG producers happy. Whatever regulations the EU adopts in the name of its planet-saving push, energy supply security will always come on top. The decision to go long-term on LNG is one key piece of evidence. More evidence comes from the regulation itself, and it suggests implementation might be challenging, to put it mildly.
LNG buyers in Europe “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,” law firm Baker and Botts partner Alex Kerr told the FT recently.
So, the EU has a regulation on tracking, recording, and reducing—and verifying the reduction—of methane emissions that ensures that the LNG that enters the bloc is the cleanest possible in the world. Enforcing this regulation is practically impossible, which provides producers with a certain leeway in addressing their methane emissions, which they are already doing because they’ve decided it’s good for business. Meanwhile, the EU has recognized the benefits of long-term commitments despite the dozens of media commentaries—and EU comments—arguing that the bloc was never going back to long-term gas commitments. It seems that U.S. LNG producers are safe.
Source: By Irina Slav from Oilprice.com