The new EU Methane Regulation – a land-shift for EU producers and importers of oil, gas and coal

Introduction

The EU Regulation on methane emissions reduction in the energy sector (EU/2024/1787) ("Methane Regulation") was adopted on 27 May 2024 and entered into force on 4 August 2024.

While carbon dioxide (CO₂) tends to get more attention in climate discussions, reducing methane is also crucially important. Indeed, methane is an extremely potent greenhouse gas: one molecule of methane has more than 84 times the global warming potential of one molecule of carbon dioxide over a 20 year period, and it is estimated that around 30% of today's global warming is driven by human-generated methane emissions.

The Methane Regulation aims to reduce methane emissions in the EU and globally, improve air quality and reinforce the EU's global leadership in combatting climate change by stopping the avoidable release of methane into the atmosphere and minimising methane leaks by fossil energy companies.

In this blog, we provide details on the legislative and policy context of the Methane Regulation and explain what new obligations now apply to EU operators of in-scope oil, gas and coal assets/installations and importers into the EU of oil, gas and coal produced in non-EU countries.

Background

The Methane Regulation was initially proposed in December 2021, shortly following the launch of the Global Methane Pledge in November 2021 at COP26 in Glasgow by EU Commission President Ursula von der Leyen and US President Joe Biden.

The pledge, which was entered into by more than 100 states, covers a commitment to cooperate "to collectively reduce global anthropogenic methane emissions across all sectors by at least 30 percent below 2020 levels by 2030."

Accordingly, the Regulation seeks to reinforce the EU's position as a leader in combatting climate change generally and methane emissions specifically, and it is likely that various other jurisdictions will consider adopting similar measures in order to reduce methane emissions. Indeed, the moves in the EU parallel others similar activities in the US under the Biden-Harris administration's Methane Emissions Reduction Programme.  

The Methane Regulation is also a product of the EU's Methane Strategy (which you can read about in our blog post here), published by the EU Commission in October 2020 in discharge of its obligation under the Governance Regulation, to publish a long-term strategy for addressing methane emissions as part of the EU's overarching commitment to reduce net greenhouse gas emissions by 55% (relative to 2005 levels) by 2030 and net zero by 2050.
 

New obligations on operators

The Methane Regulation imposes a general mitigation obligation on 'Operators' of in-scope oil and gas assets/installations and on 'Undertakings' established in the EU to prevent and minimise the methane emissions associated with their operations. In addition, it imposes the following requirements:

• by 5 February 2025: routine flaring and venting are prohibited, with some exceptions. Operators must report annually controlled flaring or venting and notify any additional flaring or venting event, and must comply with the requirements on venting and flaring without delay and in any case, no later than 5 February 2026 for existing sites and no later than 12 months from the date of start of operations for new sites;
• by 5 May 2025: Operators are required to implement regular 'type 1' and 'type 2' leak detection and repair ("LDAR") surveys to detect methane leaks in their assets. Upon detection, immediate action must be taken to repair leaks. A LDAR programme is to be submitted by 5 May 2025 for existing sites and within six months from the date of start of operations for new sites;
• by 5 August 2025: Operators and Undertakings are required to submit a verified annual report containing details of source-level methane emissions. The level of detail required in each annual report will increase progressively over a four-year period. First reports are due to be submitted by 5 August 2025; and
• by 5 May 2026 and every year thereafter: in respect of inactive, temporarily plugged and permanently plugged and abandoned wells, Operators are required to submit a verified report on their methane emissions by 5 May 2026 and every year thereafter and, within a year of the report (subject to exceptions) are required to prepare a mitigation plan to remediate, reclaim and permanently plug inactive wells and temporarily plugged wells.

Non-compliance with the requirements of the Methane Regulation may result in Operators and Undertakings incurring fines or penalties up to 20% of annual turnover.

New obligations on importers

Importers into the EU of crude oil, natural gas or coal originating from third countries will be required to:

• for sales contracts entered into prior to 4 August 2024: undertake all reasonable efforts (including amending such contracts) to require that imported product be subject to monitoring, reporting and verification measures in respect of methane emissions that are at least equivalent to those imposed on EU producers under the Methane Regulation;
• for sales contracts entered into after 4 August 2024: demonstrate that imported product was subject to monitoring, reporting and verification measures in respect of methane emissions that are at least equivalent to those imposed on EU producers under the Methane Regulation; and
• by 5 May 2025 and every year thereafter: report, on an annual basis, data relating to methane emissions and information relating to the producer or exporter from which the product was purchased. First reports must be submitted by  May 2025 and by 31 May of each following year.

Non-EU companies should note that even though they themselves might not be directly impacted as importers, the customers to whom they sell may come in scope and may therefore ask for the information needed for their own compliance.

The EU Commission will in due course publish model clauses which may be included in relevant sales contracts in order to facilitate obtainment of the data required to be reported on, although the timeline for their publication is not yet clear.

Sanction for non-compliance

The administration and enforcement of the requirements imposed by the Methane Regulation is delegated to individual EU Member States, so there may in due course emerge a degree of divergence in terms of the competent authorities' practices and approach to enforcement.

Nonetheless, the Regulations provide that Member States may impose at least the following administrative penalties and measures for infringements:

• adopt a decision requiring the entity to bring an end to the infringement;
• order confiscation of profits gained or losses avoided due to the infringements insofar as they can be determined;
• issue public warnings and notices;
• adopt a decision imposing periodic penalty payments; and
• adopt a decision imposing administrative fines up to a maximum of 20% of annual turnover in the preceding business year.

Member States are given until 5 August 2025 to required to lay down rules on penalties applicable to infringements of the Methane Regulation and to take all measures necessary to ensure that such penalties are implemented.

Next steps

The Methane Regulation is therefore slated to bring in significant changes for organisations involved in crude oil, natural gas or coal, in particular for non-EU companies through the regulation's extra-territorial reach.

It will be important for in-scope organisations to develop their understanding of the technical detail required in their reporting and work with their subsidiaries or value chain to get the information required.

If you would like more detailed information on what information the Methane Regulation captures and how this applies to you, our team would be delighted to discuss this further.