Domestic natural gas producers are going to be under increasing pressure to differentiate the methane intensity of their LNG cargoes as Europe cracks down on greenhouse gas emissions, according to experts.
Ministers for the European Union (EU), representing one of the biggest markets for U.S. liquefied natural gas, finalized rules in late May that impact both oil and natural gas imports. The rulemaking, scheduled to be implemented in 2030, would impose "maximum methane intensity values" on imported fossil fuels. The European Commission (EC) has been tasked with setting the methane limits.
Certifying the methane intensity of natural gas will ensure U.S. supply has a welcome home in the EU, MiQ CEO Georges Tijbosch recently told NGI. The rulemaking will be a “game changer,” as measuring methane emissions will no longer be “just voluntary. That's the biggest difference.” The rules are likely to upend “the entire global LNG market…It’s a sea change.”
As Tijbosch has long preached, verifying the intensity of emissions “has to be independent for it to be credible.” Transparency will become paramount, he added.
Differentiating Supply
Many of the nation’s largest gas-focused exploration and production (E&P) companies, which want to export gas to EU markets and beyond, already are verifying the greenhouse gas intensities of their gas supplies.
E&Ps use a variety of independent firms to verify the emissions and other performance data.
Equitable Origin (EO) often works in partnership with MiQ to certify emissions. Project Canary, one of the first movers in providing certified gas measurements, has used TrustWell in its verification process. The Context Labs platform’s emissions data also is independently verified by third parties, including KPMG US.
Many of the biggest Lower 48-focused E&Ps have been working for years to certify their gas supplies.
BP plc’s Lower 48 onshore subsidiary BPX Energy Inc. last year became the first integrated major to certify the methane intensity of its entire gas production portfolio.
EQT Corp., the No. 1 U.S. gas producer, has worked with MiQ and EO, as well as Context Labs, to verify methane emissions from its Lower 48 output. EQT wanted to move beyond “checkerboard type certifications,” Executive Vice President (EVP) Rob Wingo told NGI earlier this year. The Corporate Ventures chief said EQT was looking for a broader wellhead-to-end user picture.
Meanwhile, Chesapeake Energy Corp., another top U.S. gas producer, partnered with MiQ and EO to certify its gas production. Spain’s Repsol SA has certified gas produced in the Marcellus Shale. And MiQ has worked with Penn America Energy Holdings LLC to develop a liquefied natural gas export terminal to meet independently certified gas standards.
Natural gas pipeline giant Williams also is pushing “really hard on the evolution of the natural gas solution, in those next-generation technologies,” EVP Chad Zamarin, who oversees Corporate Strategic Development, told NGI. Williams markets its “next-gen gas” to give customers insight into the “end-to-end emissions reduction and certification on the natural gas value chain.”
Competitive Costs?
According to a recent analysis by Rystad Energy, North American LNG is cost competitive on a global basis. However, “buyers are increasingly interested in the full-cycle emissions profile…both relative to other potential LNG sources and relative to alternative fuels.”
As LNG has become the largest source of demand growth for North American gas molecules, producers “will need to be responsive not just to U.S. and Canadian environmental regulations but to those in key markets for North American LNG,” the analysts said.
Most domestic LNG offtakers are either Asian consumers or those that primarily serve Asian consumers, according to Rystad. While Asian buyers may have a larger “direct” position in U.S. gas exports, the offtake of domestic LNG still “overwhelmingly goes to European markets.”
The super-emitting sites and sites where reported emissions “diverge materially from what is now measured will no longer be invisible, creating both financial and reputational liabilities for the companies involved.”
Over time, “North American gas molecules with superior environmental performance will fetch better prices and/or have better market access relative to those with a worse environmental footprint.”
LNG Buyers’ Club?
Project Canary co-founder Will Foiles, chief product officer, told NGI recently that the United States “has some of the leading operators and the ‘cleanest’ producers in the world, no doubt.”
However, “oftentimes, people paint with too broad of a brush. Because we have the ‘cleanest’ producers in the United States, we also probably have some that are, let's say, far from that…It’s just a fact…But because everything has been overgeneralized, it's been a problem…”
As more global buyers scrutinize their gas purchases, “in the end, it will be very advantageous for many U.S. producers, because it will give them a standard mechanism for comparability to distinguish themselves,” Foiles said.
“Change is hard…But in the end, it will help distinguish” the companies that sell gas. The “early adopters” are basically “creating a true buyers’ club.”
Beyond the EU, South Korea and the UK also are examining how to ensure gas imports have low carbon, according to Foiles. “They're going to come together. They're going to say to potential sellers, ‘do you want to sell LNG to over 50% of the market where lots of demand growth is? Great, then I'm gonna need this data’...”
It’s not Project Canary executives pushing for the changes, Foiles said. “These are the rules that have been laid out by governments…What we're trying to do is meet the customers where they are to help them.”
For some time, certifying the emissions of gas supply had been considered “somewhat of a threat” to profits, Foiles explained.
“The people are now saying, ‘wait a second. This is a way to distinguish myself to my investors. This is a way to distinguish myself to the buyers.’”
Start The Clock
The EU rules “basically start the clock” for more U.S. E&Ps and LNG suppliers to adhere to measurement-based quantification, reporting and verification (MRV) of methane intensities, Tijbosch said.
Once the rules are in effect, “both source- and site-level measurement informed data will be required, and emission factor-based information will not be acceptable.”
U.S. exploration and production companies were beginning to track and measure the methane emissions of their output before Russia invaded Ukraine in 2022. Stripped of Russian pipeline gas, Western Europe scrambled to secure Lower 48 gas. Determining what the methane emissions levels were of the cargoes was a lower priority.
The “slow uptake by the LNG players” to quantify their emissions came for good reason, Tijbosch told NGI.
“One is the geopolitics around gas, in the light of the Ukrainian invasion by Russia and the sudden cut off by almost 150 billion cubic meters, give or take, from Europe…So several of those LNG traders have been very busy the last year or two…scrambling for gas, figuring out the logistics and technicalities.”
To ensure U.S. gas had a home, LNG terminals also went up at a breakneck speed across Europe.
“The last two years, it's been only about energy security,” Tijsbosch said. “Let's forget for a second about even pricing or the ‘green’ element of gas. What we saw in the LNG industry is that the last two years they, I would argue, have not been that receptive to thinking about things like methane.”
However, even as the war has continued, the EU too has worked to advance ways to bring lower emitting carbon gas to the continent.
The end goal is near.
Specifically for importers, the EU Methane Regulation establishes a transparency database, “where data on methane emissions reported by importers and EU operators will be made available to the public,” according to the rulemaking. The EC is setting up methane performance profiles that will allow importers “to make informed choices” about their energy imports.
Import Contracts On The Line?
Import contracts beginning in 2027 also may be impacted. As of January 2027, new import contracts for oil, gas and coal “can be only concluded if the same MRV obligations are applied by exporters as for EU producers,” according to the rulemaking. “The regulation will set out a methane intensity methodology and maximum levels to be met for new contracts for oil, gas and coal.”
Senior fellow Ben Cahill of the Center for Strategic and International Studies (CSIS) said the EU rules should matter to anyone wanting to produce or export gas.
“It is easy to get lost in the minutiae, but these rules are important for global gas producers,” Cahill said of the EU rules. “The European Union is well ahead of other gas-importing regions in demanding and publicly sharing more granular data on the emissions intensity of purchased gas.”
As the rules are clarified, “Japan, South Korea and other gas importers are in the early stages of gathering information on emissions intensity from their gas suppliers. It is possible – although far from certain – that they could eventually adopt similar requirements.”
The EU rules could be “especially challenging for U.S. LNG exporters because of the complicated nature of U.S. gas supply chains,” he noted. “Time is of the essence because within a few months LNG suppliers to Europe will be playing by a new set of rules.”
One of the most challenging elements, Tijbosch told NGI, “will be determining which producers will be required to report MRV information for any given export. The U.S. natural gas supply chain is very complex.”
As the global gas markets have come back into balance, “we are suddenly seeing a significant number of LNG players reaching out” to discuss measuring the methane intensity of their supply.
‘Clear Pathway’
MiQ, which has to date certified about 22 Bcf/d of global gas, “anticipated these changes for some time,” Tijbosch said of the EU rulemaking. Natural gas producers need “a clear pathway” to ensure access to the EU market. “We do not, however, underestimate the significant implications of the regulations for the North American LNG sector.”
Last year MiQ also partnered with Highwood Emissions Management on a methane intensity index for benchmarking regulatory and financial risks. The initial index represented more than 300,000 top-down measurements from several Lower 48 oil and gas basins. In addition, a supply chain protocol was unveiled in March to equip buyers, importers and end-users with methane intensity data from wellhead to burner.
“I think it's about time to be honest,” Tijbosch said of the work to enact verifiable emissions data. “It's the key enabler of a more transparent gas world. It can then push back to the rest of the gas supply chain and so on.”
The “energy trilemma,” a term often cited by oil and gas executives, centers around the idea that energy has to be secure, affordable and lower carbon. It’s a concept around which many operators are striving.
“You have to do it all together,” Tijbosch said of the energy trilemma. “You can't just do one.”
Global emergencies, as witnessed by Russia’s invasion, are front and center when they occur, he noted.
“But what happens is, you have this cacophony of people jumping in and saying ‘let's have more oil and gas. Let's do this.’ You have to work it all together. This is what I hear from CEOs at the energy companies. They want to stop the leaks. They want to get all this done, but you can't do it unless you do it at every point of entry.”
Meanwhile, MiQ is now piloting crude oil methane standards.
“We think there's quite a lot of demand for that sector,” Tijbosch said. Natural gas can emit methane across the supply chain. For oil, “in a way, it's simpler, because obviously, it leaks at production, but once it's a liquid, that's more or less it.”
MiQ already certifies the emissions from associated natural gas, which is produced from crude oil. Benchmarking crude methane emissions could benefit Permian Basin operators, for example, as they produce the most associated gas.
“In a broader context, the emissions from crude are roughly the same number as the emissions from gas,” Tijbosch said. “For us, this is about addressing the methane emissions in oil and gas…That's why we think it is key to go into that market.”
Ultimately, he explained, certificates that verify the emissions from a well or a cargo serve as “an information carrier more than anything else…Several large players have shown a key interest in that.”
