The Wood Mackenzie study assesses the impacts of the importer requirements (Article 28) of the Methane Emissions Regulation (EUMR) on crude oil and natural gas imports into the EU in the 2027-2035 time-period. 

The study models two scenarios: the ‘Default scenario’, which assumes implementation of the EUMR ‘as is’; and the ‘Adaptive scenario’, where Article 28 is modified to allow greater flexibility in granting country-level Monitoring, Reporting and Verification (MRV) equivalence to the EU requirements.

The EUMR’s importer requirements could have a significant negative effect on the availability and affordability of energy in the EU as of 2027 if implemented ‘as is’ and changes are not made. 

• As Europe recovers from the energy crisis, implementing the EU Methane Regulation’s requirements could lead to a new supply shock.  

• The study gives policymakers a chance to take action and make adjustments to the Regulation before it enters into force.  

• Market access/diversification impact: EUMR importer requirements make around 94% of globally available gas / LNG non-compliant in 2027.
• Supply gap: This compliance-driven supply gap means that up to 43% (~114 bcm) of EU gas demand may therefore not be met.2
• Affordability impact: Wood Mackenzie estimates that gas prices could rise to historically high, unsustainable levels, with demand destruction becoming the primary balancing mechanism.
• Competitiveness impact: Weakened competitiveness of energy-intensive industries could accelerate deindustrialisation in the EU. Higher gas costs could lead to a switch to coal for power, increasing emissions in the process.

A substantial wave of LNG supply is expected to come online in the next years, bringing the global LNG market from 600 to 900 bcm by 2030. However, as the EUMR becomes operational in 2027, Wood Mackenzie shows that the EU will not be able to take advantage of these volumes made non-compliant by the Regulation. The EUMR import requirements will create a much smaller, parallel market of ‘compliant’ volumes, constraining supply and increasing energy costs. 

• Market access/diversification impact: The amount of global crude oil supply available to the EU from 2027 could fall by 94% from ~ 85,000 mbd to just above 5,000 mbd.
• Supply gap: In 2027, available supply to the EU could hence decline by around 9.8 mbd, equivalent to 87% of total EU imports in 2024.
• Affordability impact: Wood Mackenzie estimates that the EU’s import bill would rise by more than $ 17 billion, driving up the price of EU crude by 11% ($ 9/bbl).4 Gasoline and diesel prices could increase by 24% and 16%, respectively.
• Competitiveness impact: The sharp increase in diesel and jet fuel imports may shift the EU from a net exporter to a net importer of gasoline. Carbon emissions could rise from longer shipping distances for EUMR-compliant crudes.

• The EUMR, ‘as is’, would expose refineries to supply shortages or penalties leading to a fall of around 50% (≈4.6 mb/d) in EU refinery throughput from 2027 to 2030.
• The modelled reduction in refinery throughput could cause the premature closure of up to 40 refineries, further degrading the refining sector’s competitiveness, with implications for employment, regional value chains and the resilience of critical fuel supply chains that support essential services, e.g. defense and emergency preparedness.

• The supply gap caused by the EUMR’s requirements could lead to unprecedentedly high gas prices and an increase in crude oil import costs of about 11% ($9/bbl).
• This would severely affect household energy bills and further undermine the competitiveness of EU energy-intensive industries, particularly the refinery sector.

• Some suggest that the expected wave of LNG supply growth will provide the EU with more than enough compliant volumes.  

• Wood Mackenzie highlights why this unfortunately is not the case, since the majority of new LNG volumes will not meet the strict importer requirements of the EUMR.  

• Of the more than 3000 bcm of gas available to the EU in 2027, Wood Mackenzie estimates that less than 200 bcm would be both EUMR compliant and accessible when taking into account workable certification and verification solutions, infrastructure and commercial constraints – far less than the EU’s 320 bcm demand

• The EUMR MRV-equivalence requirements for producers assume OGMP 2.0 Level 5 reporting with third-party verification. Furthermore, the requirements state that EU importers should be able to identify all OGMP 2.0 Level 5 producers.
• In 2023, only 3% of global oil and gas production reached a reporting level of OGMP 2.0 Level 5. In 2024, this number stood at 7%. Based on the most recent OGMP assessment released by UNEP,5 it is forecasted that OGMP 2.0 Level 5 reporting will cover 26% of global oil and gas output by 2027 and 28% by 2030.
• Unfortunately, as Wood Mackenzie’s study shows, this fact alone is not sufficient to ensure enough compliant volumes in time for when the EUMR importer requirements come into force in 2027.
• Achieving OGMP 2.0 Level 5 reporting tells only part of the story. Without workable systems for verification, accreditation, and certification in place, it doesn’t matter how much production is available at OGMP 2.0 Level 5, since only part of it can currently be tracked, and no verification protocols currently exist and there are not yet enough accredited verifiers.
• Looking only at the share of OGMP 2.0 Level 5 production, moreover, does not say anything about additional constraints, such as:
  • • Infrastructure: i.e. what can physically be shipped or transported to and received in the EU, as well as within the EU, as well as other physical constraints such as crude grades for refining etc.
    • Commercial: whether the compliant volumes are commercially accessible to EU importers, i.e. can they be acquired by EU importers – in competition with other global markets – and at what cost. In reality, the importer requirements may create a separate, much smaller market for compliant oil and gas, at a time when global LNG supplies otherwise are expected to create a buyer’s market for gas.
• Once all of the above mentioned constraints are taken into consideration, Wood Mackenzie estimates that gas and crude oil imports to Europe would be significantly constrained from 2027.