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Could EU methane emission rules hamper a gas deal with Trump?

Pipe dream

Major EU importers of gas have said that the bloc’s new rules to cut methane emissions are complicating contract negotiations, just as the bloc tries to wrap increased energy purchases into a trade deal to appease US President Donald Trump, writes Alice Hancock.

Context: The EU adopted stringent rules to cut methane emissions in 2024. Methane, which often leaks from gas infrastructure, is 80 times more polluting than carbon dioxide during the 20 years after it is released, and a significant contributor to climate change. Fixing methane leaks is seen as one of the most achievable climate policies.

Under the EU methane rules, fuel importers must monitor and report their methane emissions or face fines. Other countries’ rules can be deemed “equivalent”, but few have a framework as strict as the EU’s.

In a letter to the European Commission sent today, gas companies including BP, Equinor and Uniper have said that “unresolved uncertainties” in the law concerning importers’ reporting requirements are “already disrupting contract negotiations and risking the EU’s energy security”.

The companies, which will face fines of 20 per cent of annual turnover for non-compliance, have said that the commission must take “urgent action” to clarify the rules. Otherwise they will “further limit Europe’s ability to attract diverse and reliable gas supply”. Companies are due to make their first reports in May.

The statement comes as the EU is in the process of finalising a plan for how to wean itself off Russian fossil fuels. A senior EU official said that the document would contain various legal options for how companies could break their Russian contracts.

Brussels favours buying more US LNG as a way to fill any gap left by cutting out the last Russian imports, and Brussels has said it is happy to comply with Trump’s demands that the EU buy more US fossil fuels as a way to bridge its goods trade deficit with the US.

Trump shook hands with commission president Ursula von der Leyen at Pope Francis’ funeral on Saturday, and the two used a brief exchange to agree to a meeting, her spokesperson said without providing details.

But Trump has also moved to scrap US rules around reporting methane emissions, complicating any efforts to deem US methane rules equivalent in order to smooth imports.

Berlin faces EU test over German electricity market break-up

Sweden, Belgium and Czech Republic argue country’s market restructuring could drive prices down

Germany’s new government faces an early test of its sway in Brussels as it defies pressure from neighbouring countries to break up the German electricity market.

Sweden, Belgium and the Czech Republic are among countries to have argued that splitting the large German market into several zones could lower prices for their consumers, as electricity flows to the region of highest priced demand.

Europe’s grid operators on Monday are set to publish a report that could recommend the split — a measure that was successfully implemented in Sweden. Stockholm has said that it was only prepared to approve a power cable connecting Germany to southern Sweden if Berlin also reorganises its electricity market.

But the German industry, already struggling with high energy prices and low European demand, has strongly opposed changes to the country’s energy market, amid fears that it would drive up prices for the heavily industrialised south.

The EU grid operators’ umbrella organisation (Entsoe) will publish its recommendations on Monday. The body is expected to push for a division of the German market into either two or three zones, according to people with knowledge of the process.

If Berlin refuses to restructure its market and other member states insist on the split, the European Commission could take charge of the process — potentially pitting the administration of incoming Chancellor Friedrich Merz against his former party colleague, Ursula von der Leyen, who is now the commission’s president.

Studies done by the Commission show it prefers a break-up, one EU official said.

Entsoe delayed its report by several months, as Berlin balked at the prospect of having to restructure its power market. In 2022, the EU energy regulator Acer put forward several scenarios on how to split the German market, saying such a move would reduce bottlenecks and help connect renewable power sources to the grid.

“If you’re talking about energy security in terms of how to make Europe’s power grids more efficient and stable you really need to split Germany into a north and south power zone,” said Henning Gloystein, director of climate, energy and resources at Eurasia Group.

Entsoe declined to comment on the contents of the report.

EU diplomats from Germany’s other neighbouring countries have also said they would favour a break-up.

“We don’t want to piss off Germany, but de facto yes [we favour a split] — not as a matter of principle but because it would make the EU market more efficient and better functioning,” said one EU diplomat.

Early drafts of the new German coalition agreement adopted earlier this month signalled openness to reconfiguring the electricity market. But the final document said Berlin would stick to the current structure, in place since 2007, in a bid to lower energy prices and help industry.

Some of Merz’s Christian Democrats (CDU) are more open to the idea, but admit it would hard to pull off in the current environment. Christian Ehler, a CDU lawmaker from northern Germany, said electricity bills were paradoxically higher in regions that had a lot of cheap renewable energy.

A split would be “economically and physically the best option to reduce redispatch costs”, Ehler said, but the resulting disruption “might not be the best option at the moment”.

Gloystein said the influence of Germany’s regional governments, with the richer ones in the south balancing the budgets or poorer ones in the north, was “so insurmountable that the federal government would prefer to be told off by the Swedes than deal with the Bundesländer”.

Matthias Belitz, head of energy at the German chemical lobby VCI, warned that splitting Germany’s pricing zones would create “massive uncertainty” and further hit the country’s already struggling chemical sector.

“Splitting the electricity bidding zone would be tantamount to a complete reorganisation of the electricity market, which would take many years,” he said. “A lack of planning security and reliability is the complete opposite of what companies need in the current difficult situation.”

Renewables investors, particularly in wind farms, back the position of heavy industry, arguing that dividing Germany into two or three zones undermines their investment case.

“If you want to build a wind farm today in Germany you make a calculation about future revenues,” said Giles Dickson, chief executive of WindEurope. “Today you base those calculations on Germany being one single wholesale electricity market with one single price.”

Bernd Weber, managing director of German think-tank EPICO KlimaInnovation, said it was possible to balance the conflicting interests through compensation. “But unfortunately we are not having this discussion,” he said, as his government was opposing the split.

Exxon poised to overtake Shell and BP on low carbon spending

US oil major’s $30bn plan depends on Trump administration retaining Biden-era tax incentives

ExxonMobil, which once derided European rivals’ clean energy investments as a “beauty contest” that would do little to halt climate change, is poised to leapfrog Shell and BP in low carbon spending.

Investment guidance issued by six of the largest western oil majors shows that Exxon plans to spend $30bn on “low emissions opportunities” between now and 2030 — far higher than its $3bn spending plan announced in 2021.

The US oil major defines low carbon spending as investment aimed at reducing greenhouse gas emissions, and has focused on technologies such as carbon capture, biofuels, hydrogen and lithium extraction. Unlike its European rivals it has not built a large renewable energy business.

The stepped-up investment plan from Exxon comes just as European rivals that ploughed cash into clean energy in recent years begin scaling back their investments under pressure from investors.

Data compiled by Wood Mackenzie, an energy research group, shows that Shell, BP and Equinor have slashed their guidance for low carbon spending to focus on more profitable fossil fuel production.

It marks a surprising turn for Exxon, which has drawn much criticism from climate activists for continuing to increase fossil fuel output — and lobbying against restrictions — despite knowing they were causing global warming.

In February, BP — which proclaimed itself a green energy leader in 2020 — cut its annual guidance on low carbon spending to $1.75bn, down from $6.45bn, and far below Exxon’s $5bn a year. Shell has cut its proposed low carbon investments to $3.5bn a year, from $5.58bn.

Norway’s Equinor has reduced its annual guidance from $3.9bn to $2.3bn, according to Wood Mackenzie, which has analysed company data issued between 2023 to 2025.

TotalEnergies remains a leader in low carbon investment with $5bn annual spending guidance in 2025, although the company disclosed in January it would spend $4.5bn in 2025. The French group plans to spend 29 per cent of its total budget on low carbon projects, compared with 17 per cent for Exxon and Shell. BP plans to spend 12 per cent following its recent cuts.

“ExxonMobil’s low carbon strategy is gaining momentum at a time when some peers are scaling back ambitions,” said Tom Ellacott, senior vice-president at Wood Mackenzie’s corporate research division.

“The company is focusing on technologies in which it believes it has a competitive advantage and has built an attractive pipeline of opportunities in low-carbon hydrogen, carbon capture and lithium.”

But Ellacott said there was uncertainty over whether Exxon would deliver on its spending guidance, which relies on US government subsidies and customer demand.

Exxon has said investment in some of its low carbon projects, including a multibillion-dollar hydrogen plant at its Baytown refinery in Texas, depends on tax breaks in the Biden administration’s Inflation Reduction Act — the flagship climate law President Donald Trump has vowed to rescind.

“It’s important for these nascent businesses and industries to get some initial support,” Kathy Mikells, Exxon’s chief financial officer, told the Financial Times in January.

Analysts and climate groups said comparing oil producers’ low carbon spending was complex as definitions can differ between companies.

“There are two aspects of low carbon spending. The first is spend to decarbonise the existing asset base, so-called scope 1 and 2. The European majors typically include this spend in their divisional budgets, upstream and downstream, whereas Exxon and Chevron include this in their low carbon spending,” said Biraj Borkhataria, global head of energy transition research at RBC.

This could account for about half of Exxon’s spending and 20 per cent of Chevron’s, he said.

Exxon told the FT that almost 65 per cent of its low carbon investment would be spent on reducing emissions for its customers. Chevron, which plans to trim its low carbon budget this year by $500mn to $1.5bn, did not reply to a request for comment.

Follow This, a shareholder activist group that clashed with Exxon last year over climate policy, said the oil producer could not be considered a leader because it was not including the pollution from its customers burning its oil and gas — so-called scope 3 emissions.

Even so, analysts say there has been a step change in Exxon’s strategy since chief executive Darren Woods told analysts in 2020 that he sought to avoid a “beauty competition” with rivals on carbon emissions.

“Exxon is leaning into these areas not because of environmental social governance or sustainability initiatives but rather genuine business opportunities where XOM has a competitive advantage and the ability to scale,” said Betty Jiang, analyst at Barclays.

Shell said Wood Mackenzie’s data overlooked the “scale of our historical investments in the low carbon space”.

Environmental Defense Fund, a climate group, said Exxon had increased its low carbon spending — but not enough.

“It’s still woefully short of the kind of capital that needs to deploy if we’re going to make major progress in decarbonising our collective economies in the next 30 years,” said EDF’s Mark Brownstein.

The Elliott investor in a full-blown proxy fight against Big Oil

John Pike had his target in his sights. The Elliott Management partner was facing off against the chief executive of Phillips 66, the oil and gas giant in which he had built a $2.5bn stake, across a Manhattan meeting room. 

Over the course of an hour, the Texan company and its legion of defence advisers had a final chance to negotiate a truce with the world’s most feared activist hedge fund and avert the type of expensive proxy fight for which Pike was becoming known. They failed. 

Within 24 hours Elliott had launched one of the most aggressive activist campaigns the energy sector had seen in years with a full-blown proxy battle for four seats on Phillips 66’s board, nominating a slate of new directors. The fight underlines how even as rivals have switched to behind-the-scenes lobbying and Elliott itself has softened its style, Pike embodies the hedge fund’s “old aggressive style”, according to former colleagues.

In this deep dive, my colleagues look at Elliott’s maverick agitator — a man whom one person who has encountered him calls “a lone wolf inside of Elliott who wants to do things a different way”, even as the firm’s campaigns have become “corporatised and mature”.

Under Pike, Elliott has taken a series of high-profile energy positions in recent months, seeking to guide the direction of blue-chip companies from BP in the UK to RWE in Germany — as well as at Phillips 66 in the US.

Meanwhile Elliott is turning up the heat on BP. Last week we revealed that the activist group is pressing the energy group to increase its free cash flow by an additional 40 per cent through deep cuts to spending, as it upped its stake to more than 5 per cent and sharpened its criticism of the group.

US stocks have underperformed the rest of the world this year by the widest margin in more than three decades as Donald Trump’s erratic policymaking sparks an investor exodus from American assets.

The MSCI USA index — a broad gauge of US equities — lost 11 per cent in the first 16 weeks of the year, write Arjun Neil Alim in Hong Kong and Ray Douglas in London. The MSCI all world ex-US benchmark climbed 4 per cent in dollar terms over the same period, the biggest gap with Wall Street since 1993, when US investor enthusiasm for foreign stocks surged on the back of trade liberalisation and concerns over the domestic economy.

The gulf in performance underlines investors’ expectation that Trump’s tariff blitz will take a heavier toll on the US economy, by hurting growth and driving up inflation, than it will on economies elsewhere. The gap has been particularly marked with Europe, where US isolationism has prompted pledges of higher government spending — particularly on defence — which are expected to boost the local economy and support equity markets.

“A large part of this underperformance is the repricing of US assets due to increased policy uncertainty and the stagflationary shock from tariffs,” said Sameer Goel, head of emerging markets and Apac research at Deutsche Bank.

The tumbling greenback has helped widen the gap in performance. It has fallen by 8 per cent this year against a basket of six major currencies including the euro and yen, boosting non-US market performance in dollar terms.

Investors started the year betting that US stocks would continue to outshine their peers elsewhere as Trump’s tax cuts buoyed corporate profits. But that view quickly unwound after the US president launched a trade war that was far more aggressive than most investors had anticipated.

“Capital is flowing towards Europe, buoyed by confidence in strong institutions, governance, and equity markets which typically trade at discounts relative to their US counterparts,” said Lewis Grant, senior portfolio manager for global equities at Federated Hermes.

Lender proposes funding deal by selling its shares in country’s biggest insurer

Italy’s Mediobanca on Monday launched a €6.3bn offer to buy domestic rival Banca Generali as it expands in wealth management as part of a wave of consolidation in the country’s banking sector.

Mediobanca said it would fund the deal by selling its shares in Assicurazioni Generali, Italy’s largest insurer, which controls Banca Generali. Mediobanca is the largest shareholder in Assicurazioni Generali.

The combination with Banca Generali “will produce a European market leader”, Mediobanca said in a statement.

The offer represents an 11.4 per cent premium to Friday’s closing share price for Banca Generali, which gave it a market capitalisation of €5.7bn.

Mediobanca shareholders will vote on the deal at a meeting on June 16.

Bookings plunge as importers hold off on shipping goods to America in hope of Beijing-Washington deal

Donald Trump’s trade war with Beijing is starting to affect the wider US economy as container port operators and air freight managers report sharp declines in goods transported from China.

Logistics groups said container bookings to the US have fallen sharply since the introduction of 145 per cent tariffs on Chinese imports to the US.

The Port of Los Angeles, the main route of entry for goods from China, expects scheduled arrivals in the week starting May 4 to be a third lower than a year before, while airfreight handlers have also reported sharp falls in bookings.

Bookings for standard 20-foot shipping containers from China to the US were 45 per cent lower than a year earlier by mid-April, according to the latest available data from container tracking service Vizion. 

John Denton, secretary-general of the International Chamber of Commerce, said the upheaval in China-US trade flows reflected traders “kicking decisions down the road” as they waited to see how quickly Washington and Beijing could reach a deal to lower tariffs.

A survey of ICC members conducted in more than 60 countries after Trump’s April 2 “liberation day” tariff announcement showed expectations that trade would be permanently impacted, whatever the result of coming negotiations.

The cost of access to the US market would be the highest since the 1930s, Denton said. Referring to the baseline tariff for all countries, he said there was “almost an acceptance that 10 per cent will be the minimum charge to access US market, whatever other uncertainties there may be”.

Washington and Beijing showed signs of starting to feel the effects — with both sides announcing some tariff exemptions this week on important products for their respective economies and Trump predicting the 145 per cent tariff would “come down substantially”. However, China said on Friday it was not in talks with the US.

As the first container shipments from China to face tariffs are due to land in the US in the coming week, freight operators said supply chains were shifting.

Nathan Strang, ocean freight director at US logistics group Flexport, said companies were waiting to ship goods in anticipation of Washington and Beijing agreeing a deal to mitigate the levies.

US importers are looking to use up stockpiled inventories before importing fresh stock from China, said logistics executives. They are also holding stock in bonded warehouses where inventory can be stored duty-free with taxes paid on withdrawal, or diverting it to other nearby countries such as Canada.

“They’re sitting on goods at origin, sitting on goods at destination,” Strang said, warning that if a deal was done to cut tariffs, shipping rates would then jump sharply.

Hapag-Lloyd, one of the world’s largest container shipping lines, said Chinese customers had cancelled roughly 30 per cent of its bookings out of China.

Hong Kong-listed Taiwanese container shipping company TS Lines has suspended one of its Asia to US west coast services in recent weeks. “Demand is not there,” one person at the group said.

The declines in order volumes have fed through to landings in Los Angeles, according to shipping data analysts Sea-Intelligence, which reported a surge in ‘blank sailings’, where scheduled vessels from China were being cancelled.

Almost 400,000 fewer containers are booked on Asia to North America routes during the four weeks from May 5 than planned — a 25 per cent drop from the amount scheduled for the same period at the start of March, before tariffs were imposed.

The Port of Los Angeles alone expects 20 blank sailings in May, representing more than 250,000 containers — up from six in April.

That is a sharp fall from this week, when arrivals were up by 56 per cent year-on-year — a sign that importers have been frontloading deliveries from other south-east Asian manufacturing hubs such as Cambodia and Vietnam that are enjoying a 90-day “pause” in tariffs.

Container prices reflected the supply chain shift, according to data from logistics hub Freightos, with a 15 per cent increase in the price of a 40-foot container from Vietnam compared with a 27 per cent fall on major China-US routes.

“Rates from other Asian countries to the US may continue to climb ahead of the July tariff deadline,” Judah Levine, head of research at Freightos, said.

Airfreight volumes have also fallen sharply, according to US industry association the Airforwarders Association, with its members’ bookings from China falling roughly 30 per cent.

“A lot of members have just stopped receiving orders from China,” said executive director Brandon Fried. “It’s also creating a whipsaw effect on prices and booking rates as traders reacted to each piece of news from the White House.”

The industry is expected to be further hit by a US decision to close its ‘de minimis’ scheme that allowed goods valued at under $800 to be imported tariff-free, an important route for e-commerce retailers such as Shein and Temu. Chinese goods are set to lose the exemption from May 2.

Lavinia Lau, chief commercial officer at Hong Kong’s Cathay Pacific, whose air cargo business contributes about a quarter of its revenue, said it expected a “softening” of demand between China and the US because of the tariffs and de minimis rule changes.

Hong Kong freight forwarder Easyway Air Freight said business from China to the US dropped roughly 50 per cent following the tariff increases.

E-commerce executives noted waning freight demand. Wang Xin, head of the Shenzhen Cross-Border E-Commerce Association, said: “We are seeing noticeably fewer price quotation requests in relation to air cargo shipments.”

Even though stockpiling and supply-chain reorientation have helped buffer consumers from the sharp falls in freight volumes, hauliers and retailers are starting to feel the effects of the slowdown in imports.

Arizona-based Knight-Swift Transportation, one of the largest US trucking companies, warned of lower anticipated volumes, citing uncertainty caused by the tariffs threat.

Chief executive Adam Miller said some of the group’s largest customers were “expressing concern” that the cost of tariffs would feed into lower volumes in May.

“There are some that have told us that, yes, they’ve cancelled orders or they’ve stopped ordering, particularly from China, and we’ll figure out how to adjust their supply chain to avoid the cost,” he said.

Retail consultants said purchasing patterns were reflecting the three successive months of softening consumer confidence indices.

John Shea, the chief executive of Momentum Commerce, which helps consumer companies sell about $7bn annually on Amazon, warned of a potential “double whammy” of rising prices and falling consumer spending.

“We’re seeing evidence that consumers are starting to trade down . . . while at the same prices are creeping up,” he said.