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International Internet Magazine. Baltic States news & analytics 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

Alex Barnes, Nord Stream 2, Governmental Relations Advisor, 23.04.2018.Print version
Some recent articles have created the impression as the Nord Stream 2 pipeline would jeopardize the interests of consumers in EU. This concern is not justified on today's EU gas market, the situation is the opposite.

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.






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