Lesson 01-01 - Executive Summary

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Transcript

01. Lesson 1.01: Introduction 02. Regulating Methane on EU Imports 03. Disclaimer 04. What we'll learn 05. Housekeeping 06. Your Course Instructor 07. Agenda 08. Executive Summary 09. FYI: The EU is Regulating your Methane Emissions 10. How is this going to play out for producers?11. Major Challenges Exist 12. EUR MER FAQs 13. Highwood is the OGMP 2.0 partners you can trust 14. Questions Answered in this 1h Crash Course

01. Lesson 1.01: Introduction

I used to sell gas, no fuss, no flair. Just shipped it out, without a care. But Europe called and said to me, show me your OGMP.Emission factors won't satisfy. Measure, report, and verify. They want my leaks in black and white. From OGI to satellite. So now I measure, tag and trace, each part of gas in every place. I used to drill, now I disclose. I'm told that's how progress goes.

02. Regulating Methane on EU Imports

Welcome to the methane course for international producers on the EU methane regulations. I recently got back from a conference in Europe and my co-founder Jessica just got back from several conferences. We've been on the road and there's been a lot of conversations, a lot of talk around the new European Union methane regulation because this regulation impacts not only operators in the European Union, but also producers internationally. So, Highwood, because we are experts in methane and we do a lot of work around EU regulations and OGMP and related methane strategy, we thought we would put together a one-hour crash course to get our customers, our partners up to date on the EU methane regulation. As always, super excited to partner with Sega Wisdom, which is the premier provider of educational content for the oil and gas industry. Hence the Viking hat, which I'm now gonna take off and get serious for this very important topic of the new EU methane regulation.

03. Disclaimer

Quick disclaimer, before we get started. I won't read through it, just leave it up on the screen here. Long story short is if you make any decisions based on this course for your business or your life, you are fully accountable for those decisions and Highwood and Saga are not.

04. What we'll learn

So, in this course, we are going to cover this new European Union methane regulation and it's going to be from the perspective of a producer. So a lot of the content that's been written so far, a lot of the conversations that are happening have been from the perspective of the importers of gas and oil and coal into the European Union. We're going to talk about things from the perspective of international producers. And as you'll see, producers are implicated in this regulation, not directly, but indirectly.
And so by the end of this course, the goal for what we want to accomplish with you is that you're going to be able to explain what this European Union methane regulation is, what it requires and when it's required from the perspective of a producer. What data importers are going to require from producers, what data you'll need to be able to provide. We're gonna talk a lot about regulatory uncertainty, challenges the regulation is gonna face. There's a lot of big question marks that remain in terms of how it's going to be implemented and what specifically is required, and we'll speculate on some likely solutions for those challenges. And then we're gonna get practical. So we're going to talk about steps to stay compliant, steps to say competitive. How operators could see this regulation potentially as an opportunity as well as a risk and how Highwood is working with a number of our customers right now to keep them ahead of this and to get prepared without going overboard.

05. Housekeeping

A little bit of housekeeping before we get started. Two big things here: one is that we request any kind of feedback that you have for us, we want to make sure that these courses are valuable and so please reach out. We'd love to hear from you. The second is that this methane space as you know changes daily, the regulations change daily, the technology changes daily and so elements of this course by the time you're watching it may be outdated.

06. Your Course Instructor

My name is Thomas Fox. I will be your instructor for this course over the next hour. I'm a methane expert. I've been working in the methane space for almost 10 years now. I did my PhD evaluating methane detection and quantification technologies. Shortly after graduating, I co-founded Highwood Emissions Management with my business partner, Jessica Schumlich. And the work that I do now at Highwood is leading our software team in terms of the R&D aspects, the product, the technology and spending a lot of time kind of out there in the world, paving the way for where things should go in terms of measurement-informed inventories and accurate reporting of methane emissions. Highwood is really focused on how to make use of methane data as effectively as possible.

07. Agenda

Here's our agenda for today. We've broken it out into simple three chapters.
The first chapter is an executive summary where in around 10 minutes, I'm gonna run through everything at a high level, give you a good taste for what the course is going to entail.
Chapter 2 is where all the meat and potatoes are. We're going to do a deep dive on the regulation. We're gonna really get into what's required, by whom and when. And then talk about some of the specifics and some of challenges that will be faced.
And then Chapter 3 is practical. It's about taking action. It's the things that we can do today, things that you can start to prepare for in the future and how to think about being prepared for this regulation.

08. Executive Summary

All right, let's jump into the executive summary. So here's what we're going to cover today. First it's what is this EU methane rule? What does it require? Who is it going to impact? What is that impact?
We're then going to jump into how exactly it works. How obviously it's the importers who are implicated by this regulation in Europe, but we're going to talk about some of the mechanisms that are going to be in play as those importers push compliance up the supply chains towards the producers and stakeholders that separate them from producers.
We're gonna talk a little bit about OGMP 2.0 as a measurement reporting and verification framework that is named by the European Commission in this regulation as a form of compliance and as a framework that's gaining in prominence internationally.
We're then going to jump into some of the details that remain unclear, even though the direction of movement is not and speculate a little bit about how this European regulation could be setting the stage for broader international shifts and really changing how oil and gas markets operate internationally.
And then we're going to talk a little bit about how Highwood is working with our customers to prepare them and take advantage of some of these opportunities as global markets are shifting beneath their feet.

09. FYI: The EU is Regulating your Methane Emissions

So the EU methane regulation came into play as of August 4th, 2024. It introduces new obligations domestically for oil and gas operators and coal in Europe. But more importantly, and what we're going to focus on today, is that it ain't it includes requirements for importers of oil, natural gas, and coal. These requirements are going to gradually become more stringent. Starting in 2025, the regulation has already taken effect and culminating in 2030 in a methane intensity reporting that must meet a specific threshold that's outlined by the European regulator. This course, as I said, is focused on oil and gas industry and focused on the import part of the regulation. And it is specifically geared towards international producers. And I say "producers" because and we'll get into this, the definition of what exactly a producer is in the regulation is unclear at this time. Midstream, gathering and boosting, transmission and storage may be implicated and others as well. The really important thing about this regulation, especially from the perspective of a producer, is that while compliance falls on importers, the ability of these importers to meet the regulation really hinges on actions of producers and exporters upstream from them in the supply chain. And in many cases these importers will not have a direct relationship with those who are producing the oil and gas. And so this creates a really interesting mechanism where data needs to be sourced, produced and transferred, in some cases through different parties, as the physical oil and the gas travels through the supply chain. So one of the really important things about this regulation too is that as the requirements ramp up over time. We're gonna see a requirement for operators to accurately monitor, report, and verify methane emissions from producers from upstream oil and gas in ways that align with the EU requirements. And so many of you are familiar with changing regulations in the US because of the EPA's new regulations. In Canada there's new regulation. Regulations are often changing in other parts of the world. This creates a new layer of compliance for operators because not only do they have to meet their domestic requirements, but there's also these new international requirements that must be met if they're going to be able to trade internationally with European importers.
A few other things just to note here is that you'll hear this term "competent authorities". And so these are those who are responsible for compliance, enforcing compliance of the regulation. These are the member states of the European Union, so there's over 20 of these and they may operate in slightly different ways, but they are the ones who are empowered to enforce compliance and to apply penalties for the regulation in the case that they're relevant. And then over the coming years, we're gonna see delegated acts that will be released that will clarify the methodologies, clarify how verification works. There's a requirement for independent verification in this regulation. Clarify what the penalties are and how they're gonna work. And then clarify what the methodological are for methane intensity calculation and for establishing the thresholds, ultimately by 2030.

10. How is this going to play out for producers?

So how specifically is this gonna play out for producers? You've probably seen a lot of timelines for these. How this is gonna work for producers, this is a relatively simple description, is that in 2025, starting right now, you may have already seen requests. Producers need to provide some relatively straightforward data, if it's available. This is the data gathering phase for the European Union.
Skipping ahead to 2027. By 2027, if you are importing oil and gas into Europe, importers are going to need to demonstrate the source of the producer who's responsible for those molecules that are on LNG cargo or an oil tanker. And they're going to have to demonstrate that MRV equivalence is achieved with the European requirements and demonstrate it through reasonable assurance and independent verification and audit. This will likely happen through certification and we'll talk a little bit about that later.
In order to get to 2027, operators are going to have to start thinking about this now and they're likely going to achieve an independent verification in 2026, which means that independent verification needs to be for OGMP 2.0 level 5 or equivalent in 2026 or potentially even 2025. So these timelines are super, super tight. Some might say unfair, unreasonable, but here you have it, this is what's currently being asked for by the European government.
In 2028, based on how things are going now, we'll be in this phase where we'll be continually each year performing this MRV process, getting an independent audit, and providing data for the importers to ensure that we're continuing to meet these requirements on a year-by-year basis. And then we are going to have to start providing data for methane intensity as well. Not just the emissions, but the intensity and the methodology for calculating those intensities is going to be on a cargo-by-cargo basis and will have to be determined in the coming years.
In 2030, there's going to be an intensity threshold that takes effect. And this is the maximum intensity limit for the oil, for the natural gas, and even for the coal that's imported into the European Union. This is creating risks. Obviously, if you can't meet those intensity thresholds, importers are going to seek partners or counterparties who are able to meet those requirements. But it also creates opportunities, potentially. Potentially a market differentiator, especially if there is a shortage of supply. There could be a situation in the future where those operators who are to provide this data are able to command a premium for the product because what Europe is asking for is pretty special.
If you want to get to that point where you're meeting those intensity thresholds, you're going to need to know what your intensity is. And by 2029 you're gonna have to implement actions to reduce your emissions to remain within those intensity thresholds so that you can continue to trade with the European Union.

11. Major Challenges Exist

There are going to be some major challenges that exist. There's a lot of conversation, a lot of white papers that are being published right now around all the questions people have around this regulation. There's just a lot vague parts. There's lot of things that have never been done before, things operators, importers, exporters are trying to figure out. I've tried to bucket these into two major categories, given that this is just the executive summary.
The first category is data availability. So the US supplied around 45% of the LNG into the EU in 2024. But most exporters and producers right now in the US, and the US is just an example, are not engaged in OGMP 2.0. Many are. Most are not at Level 5, which is required by the regulation, and many have not built measurement in foreign inventories. And so there's a huge lift here, just to move from the data that we have today to the level of measurement, the level and analysis and the level reporting that's going to be required in to comply with these regulations. We'll talk a bit about it later, but moving into Level 5 of OGMP is no easy feat.
The second big question mark, the second big bucket of challenges is around data traceability. And so right now, if I'm an importer, I have to go to an exporter, potentially travel all the way up the supply chain in order to find out who the producers are of the product that I'm importing. There's potentially many different stakeholders involved in that process. Right now, if you're in a country like the USA, or Nigeria, or Algeria, where oil and gas products are co-mingled through the supply chain, it's literally impossible to track individual molecules from an individual producer or an individual well site to the end user. And so we need mechanisms to enable these systems of accountability and these systems of proof so that the producer who does do the work and does get independently verified can demonstrate to the importer that they did do that. And so there's going to be a lot of conversations around this. There's a lot opinions right now on how this should work. It will be very interesting to see how that plays out.

12. EUR MER FAQs

A few FAQs just to dangle in front of you before I finish the executive summary here. First one here, are importers already adapting to this? Yes, absolutely. We are already seeing contract language change between importers and exporters. There's significant activity underway. Our phones are ringing from not only producers but midstream companies as well who are saying, hey, we're getting these questions. We're starting to need to provide data. We're getting a heads up that we're gonna need to have OGMP compliance by January 1, 2027. How fast can you do this? What does it look like? What is the process? How close am I to achieving these requirements based on the work that I'm currently doing? So, we're having a lot of these conversations with the producers right now. It's an interesting and scary time for them.
Second FAQ, is it possible to comply in time? This depends. It really depends. It depends on how much work you've done as a producer so far, what your current gaps are. Each day that you wait, it gets harder and harder, but we're already in a situation now where if we are doing this and in operation Jan. 1 2027, that means that an audit has happened on your Level 5 methodology or equivalent methodology in 2026, which means the data may be coming from 2025. Which means that to really do this properly and allow enough time for that independent verification process and everything to go through, you may actually need to be Level 5 by 2025. In reality, that's probably not going to happen. We'll see how things play out. But there's a good chance you may need to Level 5 in 2026. It usually takes a lot longer to get to Level 5 than one year. And so there's a lot of questions right now in how do you accelerate this? And we have some ideas on how we can help.
Next FAQ. Is it better to act now or wait and see? The answer is both. As we get into the details of this course, I have a slide on this. I'm going to show you what you can do now and how you can wait and see. There are pros and cons to getting ready in certain ways and waiting. Because there's still a lot of uncertainty, there's so a lot that could happen, there are ways this can play out. You don't want to go overboard in terms of preparations right now. You could be spending money on things wasting energy, especially at a difficult time for the industry, on things that may not pan out. So, we're going to talk a lot about this in the course.
And then does the EU MER equal OGMP 2.0? There's kind of this simplified conception that if you just get Level 5 OGMP, you're gonna be good to go with EU regulation. Unfortunately, this is absolutely not the case. The EU requirements point to OGMP 2.0, but they also layer on additional requirements. They are more stringent. There's considerations around materiality, around independent verification, around the publishing of data publicly that is reported that are very different from OGMP 2.0 that operators need to be aware of and we're gonna dive into some of that in this course too.
Last question that we get asked is can Highwood help make the EU MER and OGMP 2.0 compliance process easier, safer, cheaper, while being as credible as possible? And the answer to that question is yes, absolutely. This is literally our life purpose and we are here to help and we're excited to talk a little bit more about what that looks like.

13. Highwood is the OGMP 2.0 partners you can trust

We are laser focused on OGMP as a business lately and we've been doing that from a couple of different angles. One of those angles is consulting services. We're doing a ton of work right now around gap analysis. So where is a company today? Where would they need to be in order to be compliant with OGMP 2.0 or an EU MER version of OGMP2.0? What is that gap? How do they fill it? And how much is it gonna cost? So we're doing a lot of consulting work. Our consultants are experts in OGMP. They've worked with more companies than probably anyone else. I can't guarantee that, but it's a lot and this is really an impressive team.
The second thing we do, and we're gonna talk a little bit more about this later, is we've developed a simplified system of the OGMP 2.0 reporting workflow in our emissions intelligence platform. We've made this super, super easy. It's super easy to get up and running. Many companies already have the data that they need. And we've built this so that it's click, click, click gold star Level 5. And we've actually just ran a pilot with a major oil and gas company, we got them up and running in a couple of weeks and delivering value almost immediately. And the feedback we got was this thing is an absolute no-brainer. And so it has been our mission, we've built this thing through consensus, through a steering committee. It has been out mission to build it in a way that it is both accessible, that handles the complexity, but that is profoundly credible, and it gets the job done and gets it done as quickly as possible.
And then finally, as you can see right now, we have educational services that we offer. We do a bunch of training, capacity building, getting people up to speed on some of these issues around methane emissions.

14. Questions Answered in this 1h Crash Course

If you stick around for the rest of this course, am I gonna answer some valuable questions? Yes, absolutely. These are some of the questions I'm going to answer.
That's it for the executive summary. Thank you so much for tuning in. Stick around for the really juicy details and the really kind of intricate nuances of how the EU Methane Rule is going to work.