EU methane regulation risks worsening the energy crisis

It’s not the first time Europe’s good intentions on tackling climate change have rubbed up against reality. In this case, the introduction of Article 28 of the EU’s Methane Emissions Regulation (EU MER), scheduled from 1 January, threatens to cut oil and gas imports into Europe when supplies are already constrained by the wars in Iran and Russia/Ukraine. Well-intentioned regulation agreed over two years ago now looks ill-timed and, increasingly, a self-inflicted wound. 

The EU bloc is substantially dependent on oil and gas imports, and fears of an energy crisis this winter may prompt the European Commission (EC) to rethink. This week, Energy Commissioner Dan Jørgensen indicated a possible 12-month delay to the new regulation’s implementation. Valentina Kretzschmar, one of Wood Mackenzie’s carbon experts, shared her thoughts. 

Methane emissions must be regulated 

Tackling methane emissions is an increasingly urgent aspect of decarbonisation globally. The EU proposals aim to bring importers of oil and gas produced outside the EU in line with methane emissions regulation already in place for indigenous oil and gas producers from 1 January 2027. Penalties for non-compliance are severe at up to 20% of the importer’s global annual revenues.   

But the regulations are not workable at present  

As ever with regulation, the devil is in the detail, detail that is necessarily dense. To wit, implementation of Article 28 of the EU MER requires importers to comply with the measurement, reporting and verification (MRV) equivalence of EU crude oil, gas and coal for import contracts effective from 4 August 2024. 

Many countries have made progress towards developing robust methane measurement and reporting. However, most oil and gas exporting countries outside Europe are simply not ready to meet the EU equivalence within the timeframe. Importers have also pointed to the complexity of achieving compliance for traded LNG and oil cargoes already at sea. 

Verification is a critical part of the jigsaw, but it’s currently missing. No agency is yet accredited to verify methane measurement and reporting of production outside the EU. Importers have stated they are unwilling to accept non-compliance due to potential legal, commercial and reputational risks. 

Could LNG tankers be left out at sea in mid-winter, unable to land their unverified cargoes? That would be a high-stakes gamble for Brussels. With oil and LNG supply already constrained by the Iran war, the EU MER risks a further policy-driven shock stacked on existing geopolitical crises.  

Analysing the impact of compliance on imports 

In March 2026, Wood Mackenzie’s analysis, prepared for Concawe and IOGP Europe, presented two scenarios of the potential impact of the EU MER on gas and crude imports and costs. In our Default scenario – which assumes the EU enforces the regulation as written – only 57% of 2024 EU gas and LNG import volumes would be compliant on 1 January 2027, leaving a significant share of EU demand at risk of exclusion from the market. Our Adaptive scenario prioritises security of supply and boosts compliance to 80%, allowing modifications and greater flexibility to 10 key exporting countries. Better, but it’s still far from averting a crisis. 

For crude oil, the outlook is worse. Compliant supply availability could fall to around 13% of the EU's total 2024 crude imports in the Default scenario – putting the very foundations of European refining under threat. 

Time for (in)action! 

Industry players and 17 EU member states have called for more time: a three-year postponement of the most substantive Article 28 requirements. The EC’s response to date has been to suggest member states waive financial penalties through to the end of 2029. But it doesn’t waive the reporting obligation – importers will still risk legal liability for breach of the primary legislation through this ‘holiday’ period. 

Last month, French President Emmanuel Macron wrote to EC President Ursula von der Leyen requesting a one-year delay – pushing out Article 28's start to 1 January 2028. France framed the argument around Hormuz-driven price pressure and the politics of the cost of living. We expect the European Commission to accede to the French request. 

Why a one-year delay may not be enough  

Europe's gas market is already tight as a drum without the EC compounding the crisis. European spot gas prices have hit a multi-year high, storage is tracking to just 71% with the 80% target by end-October seemingly out of reach and little or no new LNG supply due onstream until the second half of 2027. Add in MER-driven non-compliance risk, and European and Asian traded gas prices this winter could get close to their peak after Russia invaded Ukraine in 2022. 

For Europe’s oil market, the stakes are just as high. Constrained supply has already pushed diesel from around €1.60/L to record levels. With the market for refined products now much tighter, prices risk going higher still under the EU MER. Push refiners hard enough on sourcing and Europe risks accelerating refinery closures, worsening energy security and impacting jobs across the continent. 

Delaying full implementation by 12 months would still leave MRV compliance a genuine challenge for many importers. But it would improve the chances that imports can keep the EU supplied with oil and gas through a dangerous stretch of overlapping crises. 

Good intentions, badly timed, can still do real damage. Brussels now must now decide its next step. 

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