Page 4 - EurOil Week 19 2021

EurOil COMMENTARY EurOil

European industry awaits EC moves

Much depends on what form the EC’s methane legislation will take

EUROPE THE European Commission (EC) is drafting compliance-oriented. This is to say, will compa-
new legislation this year that will have a signifi- nies receive an incentive for improving monitor-
WHAT: cant impact on the gas market and how it devel- ing and reducing emissions according to specific
The European ops in the coming years. targets, or will the regulations be more prescrip-
Commission is drafting tive, setting out rules that companies must fol-
a proposal for methane Methane rules low, with less focus on the resulting outcome.
legislation. The EU introduced its methane strategy last year, Furthermore, companies will want to know what
and the hope is that it will encourage oil and gas the consequences would be for non-compliance
WHY: companies to invest in satellites and other tech- with either the rules or the targets.
The EU introduced a nologies to improve leak detection. But critics Companies will also be waiting to hear the
methane strategy last say the plan does not go far enough with enforc- EC’s position on what role gas can play in the
year and wants rules to ing rules on the gas industry in order to deliver European Green Deal, once the issue of meth-
help achieve its goals. results. Instead, they argue, it largely relies on ane emissions is better addressed. It remains to
companies making voluntary commitments. be seen whether the EC will also put in place
WHAT NEXT: The EC is looking to introduce legislation by regulations for other economic sectors that emit
It remains to be the end of the year that would require oil and gas methane such as coal, agriculture and waste.
seen if the EC will be firms to monitor and report methane emissions Another concern is where the cost of reduc-
more prescriptive or and take steps to avoid them, such as by repairing ing emissions will be borne and what subsidies
performance-based or avoiding leaks. The final details are currently might be available to help companies do so. The
in its legislation, how being drafted after a public consultation ended argument is frequently made that many reduc-
non-compliance will be on May 1. The EC will publish its regulatory pro- tions can pay for themselves, as the resulting gas
penalised and how the posal later this year, and final adoption by the that is saved can be sold. But this can be problem-
rules will affect third- European Parliament and the EU Council could atic. Companies that bear the cost of addressing
party suppliers. come in 2022. emissions may not be the ones that benefit. A
Methane emissions are already addressed pipeline operator, for example, may fix a leak, but
by the EU’s Effort Sharing Regulation, but this does not own the gas that is consequently saved.
only covers sectors not included in the EU’s The EU is a major gas import market and its
Emissions Trading System (ETS). There are also dependence on foreign supplies is only antic-
voluntary agreements in place, such as the UN ipated to grow as its indigenous production
and EU-backed Oil and Gas Methane Partner- declines. Another point of uncertainty is how the
ship (OGMP). But with pressure from the public legislation will address methane emissions from
and various groups, the EC is looking to propose gas produced in third countries such as Russia,
binding rules to monitor and mitigate methane Algeria, Nigeria and the US.
emissions.
Under existing policies, methane emissions New gases
in Europe are expected to fall by 29% by 2030, The gas industry is also waiting other legislative
but it is estimated that a 35-37% reduction will movements. In autumn, the EC will propose
be needed by the end of the decade to achieve the amendments to the 2009 Gas Directive, which
bloc’s goal of a 55% reduction in overall green- covers EU market rules on issues like ownership,
house gas (GHG) emissions. unbundling and competition. The EC wants to
update the legislation to outline how renewable,
Unanswered questions synthetic and decarbonised gases will be incor-
What shape this legislation will take is unclear porated into the market.
at this stage. But Europe’s oil and gas industry is The EU is looking to have 40 GW of electro-
waiting to find out whether the EC’s proposal lyser capacity up and running by 2030 to pro-
will simply focus on reporting and monitoring duce so-called green hydrogen. The concern is
or whether it will put in place binding targets for ensure the same fair access and competition in
reducing emissions. the hydrogen market as there is in the gas mar-
Many in the industry argue that binding ket. The EC wants to avoid a situation where
targets would be greatly problematic, given the there are high barriers to entry for new play-
difficulty of quantifying how much methane is ers wanting to enter the hydrogen market, for
emitted into the atmosphere. For instance, quan- example. The question has been raised whether
tifying depends greatly on whether a bottom-up transmission system operators (TSOs) should
approach, involving estimates on the ground of be allowed to produce hydrogen and operate
how much methane is escaping, or a top-down the networks to transmit it. Some argue they are
approach, involving satellites, is used. best placed to make investments in hydrogen
The next issue is whether the regula- production, while others argue this would risk
tions will be more performance-based or creating monopolies. ™

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