EU Methane Emissions Regulation – Analysis of Market Impacts
The European Union’s Methane Emissions Reduction Regulation (EUMR) aims to reduce methane emissions from the energy sector, covering crude oil, gas, and coal activities across the entire supply chain within the EU and from the production level for EU imports. It sets rules for measurement, reporting, and verification (MRV) of emissions. The regulation has an extraterritorial effect, imposing obligations on importers to ensure that producers of crude oil and natural gas meet equivalent standards, which will be of application starting 1 January 2027.
In this context, Concawe and IOGP Europe have commissioned the research consultant Wood Mackenzie to conduct an independent analysis of the potential impacts of MER’s importer requirements on the EU’s crude oil, refined products, and natural gas supply and pricing in EU markets.
The study focuses on the MRV equivalence requirements, which state 2 pathways for producers and importers to demonstratethe required “equivalence” to EU MRV rules to place crude oil and gas on the EU market:
- Country-level equivalence: The non-EU producer country has MRV rules for methane emissions that are equivalent to the EU rules.
- Producer-level equivalence: Even if the country lacks equivalent regulation, the specific producer can demonstrate either via monitoring & verification tools in place or OGMP Reports.
Wood Mackenzie leveraged its extensive database of Crude oil and Gas producers, evaluated the expected percentage share of production that would achieve MRV equivalence under different 2 scenarios of regulatory ambition and implementation processes and applied these in Wood Mackenzie’s proprietary linear optimisation tools (gas and refining) to simulate the impact on global gas/LNG and crude oil markets.
The Default Scenario models a strict application of the EUMR as adopted in 2024: in this scenario, no country reaches equivalent MRV standards by 2027, and only a few producers, according to OGMP projections, can be considered equivalent.
87% of EU 2024 crude imports (9.8 mb/d) and 43% of gas imports are excluded from the market in 2027. The shortage of compliant crude causes EU refinery capacity losses equivalent to 40 closures, record diesel/jet imports, gasoline/diesel prices +24%/16%, and unsustainable gas prices.
The Adaptive Scenario foresees that modifications are introduced to the EUMR, allowing for greater flexibility, such as in granting country-level MRV equivalence. The exclusion of 38% of EU 2024 crude imports (4.3 mb/d), despite 10 countries fully compliant (Norway, US, UK, Canada…), leads importers to reshuffle their supply, but shortages are avoided.
Crude costs are expected to rise of $3/bbl (4%), while refinery throughput will decrease by 150k b/d Equivalent to the closure of one medium-sized refinery; gasoline/diesel prices will be almost 1% higher than they would be in the absence of the EUMR, and TTF gas will reach $19/MMBtu, damaging EU refineries' competitiveness.
