I noted recently in a paper with Clayton Munnings that opportunities exist for building a market for low-methane natural gas. Already, the European Union and France have moved the ball forward.
This month, the European Union released a document that details for the first time its methane control strategy. In addition, France barred—at least temporarily—$7 billion in sales of liquefied natural gas (LNG) from NextDecade, a US company that plans to build an LNG export facility in Brownsville, Texas. NextDecade wants to sign a multi-year supply deal with Engie, which is the largest gas distribution company in Europe and is partly controlled by the French government. French policymakers reportedly have concerns that the LNG from NextDecade’s planned suppliers—across production, processing, and transportation lines—would leak too much methane.
While the details behind the delay of the Engie deal are unclear, the European Union’s strategy for dealing with methane emissions from natural gas is becoming much more apparent. The European Commission’s recent communication to key EU governing bodies provides a plan for reducing methane from the energy, agricultural, and waste sectors. Focusing strictly on the cross-cutting and energy-sector elements, the plan is to start with voluntary efforts, and then develop EU legislation in 2021.
For now, one key priority is to encourage improvements in monitoring, verification, and reporting (MRV) systems, to bring standards up to the Tier 3 level, as specified by the United Nations Framework Convention on Climate Change. This effort will involve encouraging companies throughout the energy supply chain to implement the Oil & Gas Methane Partnership (OGMP) measurement and reporting framework and to set up more robust leak detection and repair (LDAR) systems. It also will establish an international methane emissions observatory, which will work alongside the United Nations Environment Programme, the Climate & Clean Air Coalition, and the International Energy Agency and will be an independent body to provide credible methane statistics globally.
Another element of the European Commission’s recent communication is a plan to recognize the current and future benefits of satellite data from the European Union’s Copernicus program, which currently can identify large super-emitters of methane. By 2025, the program will provide much greater resolution, such that satellites will be able to detect even smaller quantities of methane emissions around the world.
Two additional elements of the plan are particularly interesting. The first recognizes that publicly regulated companies are reluctant to adopt strategies to control methane leakage unless the costs can be recovered in the price they charge customers. The European Commission will encourage its member states to address this concern. The second seeks reductions in methane from abandoned oil and gas wells.
On the international front, the European Union recognizes its leverage, as the world’s largest importer of natural gas, in improving MRV systems and encouraging methane reduction globally. It plans to use that leverage to form a coalition with other major importing countries that would encourage supplier countries and companies to join the OGMP.
More importantly, the observatory will be tasked with creating a methane supply index to incentivize countries and importing companies to adopt robust MRV systems. Specifically, the report sets out that “the [European] Commission will propose to use a default value for volumes that do not have adequate MRV systems in place, [which] will be applied where necessary until a compulsory MRV framework for all energy-related methane emissions building on the OGMP 2.0 methodology is implemented.” In addition, the communication makes clear that the European Commission will consider other mechanisms—such as targets, standards, or other incentives—to encourage emissions reductions when dealing with countries that have less ambitious commitments on methane emissions.
To supplement these voluntary measures, the European Commission eventually will develop legislation that makes MRV and LDAR systems compulsory throughout the natural gas value chain, and require the elimination of routine venting and flaring.
As the French case illustrates directly, and the European Commission’s communication foreshadows, LNG exporters around the world should be aware that importing gas to Europe and possibly other major users will soon require some sort of certification that the natural gas is “green” or low methane. Implementing MRV and LDAR systems and making real efforts to reduce methane emissions will be required. Satellite systems that become more and more sophisticated and provide greater resolution will back up these systems with inexpensive monitoring. While some time remains before European legislation sets standards for methane intensity, the European Commission clearly is signaling its intention to go down that route. Markets for green gas are not far behind.