By Felix Bob Ocitti
On 27 May 2024, the European Union (EU) passed a regulation to impose methane emissions limit on oil and gas imports to the block from 2030. The law imposes a “maximum methane intensity values” on fossil fuels placed on the European market with both domestic and importers who flout the regulation potentially liable for penalties. Simply put, methane intensity is the quantity of methane released into the atmosphere relative to the amount of oil or gas produced.
The regulation specifically applies to the reduction of methane emissions in oil and fossil gas upstream exploration and production, in inactive wells, temporarily plugged wells and permanently plugged and abandoned wells, in fossil gas gathering and processing, in gas transmission, distribution and underground storage, as well as in liquefied natural gas (LNG) facilities. The regulation also extends to active coal mines both underground and surface.
Methane is one of the potent greenhouse gases believed to contribute up to 30% global warming and has over 80 times warming effect compared to Carbon dioxide over a 20-years period. According to the UNFCCC, there has been increased methane emissions from oil and gas production activities globally from an estimated 65 Mt/year to 80 Mt/year in the last 20 years. This regulation is therefore one of EU’s efforts under the European Green Deal and the Global Methane Pledge which aims to reduce global methane emissions by at least 30% from 2020 levels by 2030, with estimated potential to eliminate about 0.2˚C global warming by 2050.
This will require accurate measurement, monitoring, reporting and verification of methane emissions in the oil, gas and coal sectors, as well as for the reduction of those emissions, including through leak detection and repair (LDAR) surveys together with restrictions on venting and flaring. The rules and framework for implementation of this regulation are however still being worked out but the aim of this article is to discuss the implication of this regulation for global oil and gas trade with the EU in general and EU trade with Africa in particular.
For context, the EU currently depends on imports for 97% of its oil consumption, 90% of its fossil gas consumption and 70% of its hard coal consumption, making the union dependent on fossil energy players outside of the block. Out of the 480 Mt of crude oil imported into the EU in 2022, at least 18% was from Africa, a similar trend is seen for gas imports from Africa accounting for at least 20% in 2022, dominated by Algeria, Libya, Egypt and Nigeria.
With the EU determination to move away from the dependence on Russia for its oil and gas imports and the emergence of many African players like Mauritania, Senegal, Tanzania, Mozambique, Uganda, Namibia etc. in the sector, and in addition to other relatively established countries like Angola, Congo, Equatorial Guinea, Gabon, Cameroon etc. it is important that the implication of this new regulation is put into consideration while planning for future trade with the EU, and these include the following.
First, whereas methane emissions from Africa is relatively low, EU is a significant trade partner for African oil and gas producers and this regulation creates a new standard requiring compliance to access the market. This may include compliance with the EU’s Carbon Border Adjustment Mechanism (CBAM), which aims to level the playing field by imposing carbon costs on imports that do not meet its environmental standards. Compliance therefore means potential increase in operational costs necessitating investments in new technologies and practices including upgrading infrastructure, implementing monitoring systems, and adopting best practices for emission reduction. This financial burden might be especially challenging for smaller producers or those with limited resources.
Secondly, the regulation has potential to influence the development of national policies within African countries to implement stricter environmental standards which align with global commitments aimed at improving market competitiveness. This could lead to a more robust regulatory framework for methane emissions mitigation within African countries, fostering a more sustainable oil and gas sector. The positive effect is the potential to attract funding and investment opportunities to support the necessary upgrades and practices. This is particularly important for new producers.
Thirdly, participation in international initiatives aimed at mitigating methane emissions from the oil and gas activities will become necessary for producing countries in Africa. These initiatives include the Global Methane Pledge, which was launched at COP26, the Oil and Gas Decarbonization Charter launched at COP28 and the Oil and Gas Methane Partnership 2.0 among others. All these initiatives are aimed at ensuring accurate detection, measurement, mitigation and reporting of methane emissions from oil and gas activities. Joining such initiatives will not only ensure sustainable development but also provide opportunity to adopt best practices from each other.
Fourthly, the EU Regulation can provide an avenue for African oil and gas producers to meet their global climate goals as articulated in the respective Nationally Determined Contributions (NDCs). This will contribute to the broader effort of mitigating climate change and enhance the global reputation of African producers as environmentally responsible entities. The EU estimate that up to a third of the current global methane emissions can be reduced by enforcing this new Regulation using existing technologies which has been shown to reduce methane emissions by up to 70%. Additionally, enhanced environmental practices will improve relations with local stakeholders in communities of operation ensuring a social license to operate.
In conclusion, the EU’s new Regulation on methane emissions limit present both challenges and opportunities for African oil and gas producing countries. This is because while the immediate financial and operational impacts may be substantial, there are significant benefits to be gained through improved environmental performance, access to international funding, and enhanced global reputation as environmentally conscious jurisdiction. By leveraging these regulations as a catalyst for positive change, African countries can advance their climate goals, improve their market positioning, and contribute to the global effort to combat climate change.
The writer is a Senior Policy Officer, Research Oil and Gas Programme Lead at the African Energy Commission of the African Union
