When Donald Trump returned to the White House, he promised to boost U.S. energy dominance. This was a positive development for Europe, which needed gas, and the U.S. had plenty to offer. However, Europe’s long-term goals to transition away from fossil fuels could now clash with its immediate energy security needs.
In 2022, the European Union passed a Methane Regulation aimed at reducing methane emissions from liquefied natural gas (LNG) producers. The regulation requires producers to monitor, record, verify, and reduce methane emissions to sell LNG to European buyers. While this is beneficial for the environment, it also comes with additional costs.
A recent Reuters article suggested that U.S. LNG producers might be unwilling to absorb these extra expenses, especially when Europe has plans to eventually phase out gas. The process of liquefying gas is costly, and every penny and molecule counts. However, there is evidence that U.S. producers are already taking steps to reduce methane emissions. Industry groups have said they will continue to track and reduce emissions, even under new leadership in Washington.
“Our members have invested tens of millions of dollars to reduce emissions before any U.S. regulations were in place,” a representative of a group addressing LNG emissions said. “They are committed to continuing to reduce emissions.”
Despite these efforts, some experts warn that Europe’s ambition to eventually stop using natural gas could create challenges for LNG producers. One of the signs of this risk is the reluctance of European buyers to sign long-term contracts, which could undermine energy security.
To address this, the EU has started joint gas buying, which helped secure energy during peak demand periods last year. Although it only covered a small portion of demand, the EU is calling it a success and plans to expand it. The EU is also investing in LNG infrastructure abroad to secure future supply. This suggests that long-term commitment to LNG remains a priority for Europe.
“The EU would immediately engage with reliable LNG suppliers to secure additional, cost-competitive imports from current and future LNG projects,” a European Commission proposal stated. The proposal also mentioned the possibility of exploring long-term contracts to stabilize prices, signaling that long-term agreements are making a comeback in Europe.
However, the EU still faces a challenge with the methane emissions of its LNG suppliers. The U.S. is the top supplier, but Russia is the second-largest provider. Despite EU sanctions on Russian energy, it still relies heavily on Russian gas, which complicates the issue of methane reductions. The EU’s continued purchases of Russian gas suggest that energy security will take precedence over environmental goals.
The EU’s plan to phase out Russian gas within two years, along with its methane regulations, may be difficult to implement. A key issue is that LNG buyers cannot always track the emissions of each molecule of gas back to its source, making it hard to verify compliance with methane regulations. As a result, enforcement could be challenging.
While the EU is committed to reducing methane emissions, the difficulty of enforcing these regulations may give U.S. LNG producers some flexibility. Moreover, Europe’s recent decisions show that energy supply security remains its top priority. The return of long-term LNG contracts and the challenges of implementing methane regulations suggest that U.S. LNG producers are in a strong position.
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