EU Methane Emissions Regulation Study: analysis of market impacts

Wood Mackenzie conducted a scenario-based analysis to assess the potential impact of the EU Methane Emissions Regulation (MER) on natural gas, LNG and crude oil supply and costs. The analysis began with a Base Case, representing a business-as-usual outlook without MER. Against this baseline, two hypothetical scenarios were developed to illustrate a range of possible outcomes under different approaches to enforcing MER importer requirements. 

The Default Scenario assumes the EU enforces the regulation as written. The Adaptive Scenario assumes modifications are made to the regulation to enable a more flexible approach to granting MRV country-level equivalence, prioritising security of supply. The purpose of this analysis is to highlight the potential market impacts of contrasting regulatory approaches, not to predict specific enforcement decisions by the EU or EU member states.

The study used Wood Mackenzie’s proprietary modelling tools—the Global Gas Model (GGM) for gas/LNG and the Refinery Supply Model (RSM) for crude oil and refining—both linear optimisation models that simulate least-cost supply allocation scenarios under complex market and policy constraints.

Default Scenario: significant risks to energy security

The modelled results show that the implementation of MER under the Default Scenario poses significant risks to the EU's energy security and industrial competitiveness. Our review in mid-2025 of methane reporting regulations in countries exporting gas, LNG or crude oil to the EU found that no countries meet MER's country-level equivalence requirements. The Default Scenario assumes that, since no exporters achieve country-level equivalence requirements, the volume of compliant product is determined by producer-level equivalence and the ability of importers to identify the upstream producers. Our analysis indicates that by 2027, approximately 43% of the natural gas and 87% of the crude oil imported into the EU in 2024 could be non-compliant with MER. 

This creates a major reshuffling of global trade flows of gas, LNG and crude oil. Not enough compliant crude oil is available globally for EU refineries to maintain normal operating levels, requiring them to buy crudes that are not typically processed in Europe and leaving non-compliant crudes available to refineries in other regions of the world. EU refinery throughput could collapse by around 50% between 2027 and 2030 due to a shortage of compliant crude oils, forcing widespread refinery closures. This would reverse the EU's position as a major exporter of refined products such as gasoline and bring imports of jet fuel and diesel to record highs. 

The resulting supply shortfall could drive energy prices to historically high and unsustainable levels, triggering demand destruction and structural changes across the EU economy. Gas prices could increase sharply, prompting a shift toward coal for power generation – an unintended consequence that could increase carbon emissions. Gasoline and diesel prices could rise by 24% and 16% respectively, compared to a no-MER Base Case. A large increase in fuel imports to replace domestic refinery production could create severe logistical bottlenecks and disruptions. In addition, feedstock supply from EU refiners to the chemical industry would be severely impacted. These dynamics could weaken the competitiveness of the EU's energy-intensive industries due to higher energy costs, which could accelerate deindustrialisation in the EU. 

Adaptive Scenario: material risks remain

The Adaptive Scenario assumes modifications to MER allowing greater flexibility in granting country-level MRV equivalence. This reduces the impacts seen in the Default Scenario, but the risks remain material. Under this scenario, approximately 20% of the natural gas and 38% of the crude oil imported into the EU in 2024 could be non-compliant with MER in 2027. The TTF gas spot price in Europe could climb to an annual average of US$19/mmbtu in 2027-28, more than twice as high as the level forecast in a no-MER Base Case, damaging the competitiveness of the EU's industries. The fuel price impact is more moderate, with gasoline and diesel prices both around 1% higher than they would be in a Base Case forecast. 

Practical implementation hurdles include limited verified OGMP 2.0 Level 5 supply, difficulties tracing original producers due to commingling and trading, and an unclear process for independent verification. 

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