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Friday, 29.03.2024, 09:38
Advisor to Nord Stream 2: the Norwegian gas can not be separated from the Russian one, the gas must flow in both directions
In 2007 the EU
proposed the Third Gas Directive. European gas consumers faced a number of
strategic challenges.
Firstly Europe is an
importer of gas and that import dependence was going to grow as indigenous
production declined. Secondly some countries were very dependent on single
suppliers of gas, but lack of infrastructure meant that these countries had no
alternative suppliers. Thirdly there was little competition in the supply of
gas both to Europe and between companies within Europe. Consumers had
little or no choice of supplier.
The Third Energy
Package formed the foundation for the gas market
EU has
ensured that there is a now a fully competitive gas market. All EU customers
have the right to choose their gas supplier, and companies compete across
Europe to supply them. The EU has put in place rules that ensure that all
companies have equal access to the pipelines that supply customers. Companies
have to book capacity on the pipelines in open auctions. Capacity which is
booked but not used is made available to other companies. This stops companies
from hoarding capacity to stop their competitors from accessing customers. The
rules ensure that companies only book the capacity they need to supply their
customers, and prevent anti-competitive behaviour.
The free flow of gas
has been set up in Europe
The EU
rules ensure that gas can flow freely anywhere within Europe. Today a
Norwegian supplier can sell gas in Slovakia or a Russian supplier can sell gas
in the UK. It does not make sense for Norwegian gas to flow to Eastern Europe and
pass Russian gas going the other way to Western Europe. Instead the pipeline
companies, which are independent of the companies which sell gas, work out the
most efficient way to flow gas within the European pipeline network. Once gas
enters the EU it is part of one pool of gas with Norwegian gas
indistinguishable from Russian gas. So a Slovakian factory can buy gas from a
Norwegian supplier even if the molecules themselves are Russian. This enables
competition between suppliers and ensures that gas prices are set by the
market, not dictated by individual companies – a fact recognised by EU
regulators.
The more gas
pipelines the more competition
The rules which
ensure the free flow of gas are insufficient if there is not enough
infrastructure. The European pipeline network was originally built with only
sufficient capacity to get gas from the nearest source of supply to customers.
This was economically efficient - companies only built enough capacity to meet
gas demand. The competition between the suppliers was non-existent and if
something happened with the only supplier the situation could develop as
critical.
Since 2010
EU rules require all countries to have enough infrastructure to cope with
disruption from their biggest supplier, and that existing pipelines can flow
gas in both directions. For Eastern Europe this meant being able to flow
gas from West to East as well as from East to West – the traditional source of
gas. The EU has supported investment via the Projects of Common Interest funding
programme.
Why do we speak about
LNG
There has
also been a big increase in the number of Liquefied Natural Gas (LNG) terminals
in Europe. These enable European customers to buy LNG from suppliers such as
Qatar or the US, as well as gas from pipeline suppliers such as Russia and
Norway. It does not matter that a country does not have its own LNG terminal as
gas can easily flow from an LNG terminal in a different country. LNG could
supply nearly half of total EU demand.
The EU
reforms have created a large single market which is very attractive to LNG
suppliers from all over the world. They know that they can always sell their
LNG into Europe if the price is right. The world LNG price is set by the forces
of supply and demand with demand for LNG from other regions such as Asia
growing substantially. This means that LNG is usually more expensive than
pipeline gas supplies to Europe. But if pipeline suppliers try and charge too
much for their gas, then customers can switch to LNG suppliers instead.
What will the future
bring
Some
work remains to be done. Some interconnectors are yet to be built and some
countries still need to implement EU rules properly. The EU should focus on
this before introducing changes to the Gas Directive which are not supported by
analysis. But overall EU consumers can already thank the EU for improving the
security and affordability of their gas supplies.