US gas exporters face EU methane restrictions after carbon tax hiatus

U.S. oil and gas exporters have been warned they face yet another toughening of EU pollution control rules despite the exclusion of energy from a series of climate proposals introduced in Brussels last week.

The European Commission’s new climate strategy, unveiled on Wednesday, confirmed that while steel, fertilizers and other imports could be subject to taxes based on the carbon emitted during their production, oil and natural gas would be initially excluded.

But relief among U.S. exporters of liquefied natural gas – a super-refrigerated form of fuel shipped internationally – would be misplaced, analysts said, given that separate rules on methane, a greenhouse gas with up to 80 times the warming effect of CO2, are expected. In the coming months.

“LNG exporters have largely won a reprieve from the EU package,” said Bob McNally, director of Rapidan Energy Group, a Washington-based energy consultancy, “but the commission is coming for them in regulation on methane later this year “.

The boom in shale gas production over the past 15 years has made the United States the world’s third largest exporter of LNG, behind Qatar and Australia. U.S. exports to Europe reached around 26 billion cubic meters last year, ten times more than in 2017, according to BP.

Boasting his “freedom gasThe US government argued that exports to Europe could break the continent’s heavy dependence on energy from Russia, a geopolitical rival, while generating considerable export revenue.

But the US shale patch remains a big emitter of methane despite the Biden administration’s efforts to tackle pollution.

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The methane committee’s proposals, which still require approval from EU member states, could make the exclusion of energy from the new carbon border adjustment mechanism (CBAM) unnecessary, said Kevin Book , Managing Director of the consulting firm ClearView Energy Partners.

“Whether it’s part of CBAM, and whether it’s the ax chopping the wood, or whether it’s running on a parallel plane doesn’t really matter,” he added. “What he says to anyone who exports gas from the United States and looks at Europe is, ‘you better find a way to go green.’

The commission said the new CBAM would “initially only apply” to certain goods, leaving its expansion open to energy and other sectors after 2025, when a first phase of implementation ends, said. analysts.

“They are looking before the end of the transition period to define a scope that could be broader, including other products,” Book said. “It was by no means excluded.”

Methane associated with shale gas has become a growing threat for further expansion. Unlike Qatar and other exporters, US LNG groups buy base gas from many shale suppliers and can do little to control upstream pollution or leaks from pipelines and other infrastructure.

“The next wave of LNG [capacity construction] is already being challenged economically by countries like Qatar, ”said Samer Mosis, head of LNG analysis at S&P Global Platts. “And they own the entire value chain – shipping, production, everything – so they can oversee the whole chain. “

At least three quarters of the EU’s methane emissions from natural gas occur outside the bloc’s borders, according to carbon limits, a consulting firm in Oslo.

U.S. upstream oil and gas production has a much higher methane intensity – a measure of emissions per barrel produced – than some other gas-exporting countries to Europe, such as Norway and Qatar, according to the Oxford Institute for Energy Studies.

Some American shale producers have tried to mitigate their pollution by purchasing carbon offsets, limiting the combustion of natural gas at the wellhead, or join programs which certify a less intensive methane production.

These measures gained momentum after November, when Joe Biden’s election victory heralded a crackdown on pollution and Frenchman Engie withdrew from a long-term contract to buy LNG from the United States in due to the methane intensity of the shale gas.

But the industry must move faster before further tightening of rules across the Atlantic, said Jonathan Stern, head of gas research at the OIES.

“At least some of America’s LNG contains more GHGs,” he said. “It is not a sensible strategy to wait for something to be imposed.”

Additional reporting by Amanda Chu in New York


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