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The European Union is putting its energy security at risk by attempting to regulate every single molecule of energy products it will import in 2027, the year in which the EU will ban Russian natural gas.
In its net-zero push and targets to slash emissions, the EU in recent years has adopted a series of legislative measures to address the energy sustainability issue. But in doing so, it is undermining what’s become the most important energy issue, that of security, in the aftermath of the Russian invasion of Ukraine and the realization that Europe cannot rely on Russia for its gas supply.
The EU Regulation on reducing methane emissions in the energy sector, in effect from August 2024, and the proposed Corporate Sustainability Due Diligence Directive (CSDDD) are placing additional barriers to LNG flows to Europe, according to gas producers and traders and the world’s biggest LNG exporters, the United States and Qatar.
Importers of LNG may have to divert cargoes away from the EU as of 2027 due to non-compliance with the legislation, which would reduce gas supply just as Europe will have phased out Russian gas flows.
The U.S., Qatar, and the gas industry call for immediate, drastic changes to the regulations—or the scrapping of these—if the EU wants to protect its energy security and continue importing LNG from its top suppliers.
Methane Regulation
The first-ever EU Regulation on reducing methane emissions in the energy sector came into effect on August 4, 2024.
For imports, the next milestone in the regulation is the monitoring, reporting, and verification requirement. Under this requirement, importers must demonstrate – as of January 2027 – that the crude oil, natural gas, or coal imported into the EU was produced in a jurisdiction with monitoring, reporting, and verification requirements equivalent to those applied domestically in the EU.
The industry argues that there cannot be verification of emissions from the various sources of gas in an LNG cargo—in the case of the U.S., it is gas produced from thousands of wells across the country, which flows to liquefaction and export facilities. Importers say they cannot verify every single molecule. It’s also unclear how the EU will verify the verification provided by importers.
“We have been complaining about many of these things basically since day one,” Andreas Guth, secretary-general of industry association Eurogas, told the Financial Times.
Eurogas members include supermajors Shell, TotalEnergies, and BP, which are also the world’s top LNG traders.
Importers of LNG into Europe “may decide to divert those cargoes to other markets outside of the EU” if the methane rules are not changed “immediately”, Guth told FT.
Eurogas and five other industry associations last month raised concerns about the so-called “tracing issue” in pinpointing the exact origin of energy molecules throughout their often long, often complex journey since production.
The general concepts to address the “tracing issue” proposed so far “may not adequately consider the current gas and crude market structures and, hence, are unlikely to be implementable without considerable cost and disruption to existing markets or are unlikely to be implementable in key producing countries that supply the EU market,” the associations said in a joint paper.
Another group, the International Gas Union (IGU), while supporting the objectives behind the methane rules, warned this summer that “closer cooperation between government and industry is necessary to ensure well intended regulatory actions are aligned with the industry’s realities, and that they do not hinder countries’ ongoing efforts to achieve energy security through diversification.”
Sustainability Directive
The methane regulation is just one product of the EU’s bureaucratic machine. Another rule, the so-called Corporate Sustainability Due Diligence Directive (CSDDD), which imposes penalties on companies in case of non-compliance, has drawn the ire of Qatar and the United States and supermajors, including ExxonMobil.
Exxon would be forced to quit its business in Europe if the EU doesn’t materially ease or repeal the directive, CEO Darren Woods said last week.
“If we can’t be a successful company in Europe, and more importantly, if they start to try to take their harmful legislation and enforce that all around the world where we do business, it becomes impossible to stay there,” Woods told Reuters.
Exxon’s top executive has told Bloomberg recently that the directive is “the worst piece of legislation I’ve seen since I’ve been in this job.”
U.S. Energy Secretary Chris Wright and Qatari Minister of State for Energy Affairs, Saad Sherida Al-Kaabi, told the EU last month in a letter that proposed alternative texts haven’t properly addressed the problematic issues in the directive.
“We have consistently and transparently communicated how the CSDDD, as it is worded today, poses a significant risk to the affordability and reliability of critical energy supplies for households and businesses across Europe and an existential threat to the future growth, competitiveness, and resilience of the EU’s industrial economy,” the top energy officials of the U.S. and Qatar said.
They call on the EU to either repeal the CSDDD in its entirety or remove its most economically damaging provisions, including those on the extra-EU application of the directive, penalties, and civil liability of companies.
The U.S. National Association of Manufacturers (NAM) also slammed the EU directive, saying last month that “a sweeping new European Union regulation could saddle America’s manufacturers with costly red tape—undermining U.S. sovereignty and manufacturing growth here at home.”
NAM Managing Vice President of Policy, Charles Crain, commented, “Manufacturers appreciate the Trump administration standing up for our industry on the world stage, and we urge both American and European policymakers to protect U.S. companies from this costly and unworkable burden.”
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