ACER: Removing Regional Barriers in Gas Markets
It is essentially impossible to move natural gas between a number of European Member States because of inadequate infrastructure an expert from the Agency for the Cooperation of Energy Regulators stressed, noting that even where gas can be moved between countries, there is in many instances a high concentration on the supply side.
Boyko Nitzov, TSO Cooperation Officer, Team Leader for Gas Infrastructure Development at the Gas Department of the European Union’s Agency for the Cooperation of Energy Regulators (ACER) said that from the Agency's market monitoring report it emerges that the majority of Member States have not reached the target level of competition in the market.
‘’Quite often the market is very concentrated, in the hands of few suppliers, and the so-called HHI index is very high, i.e. the level of competition on the supply side is very low. There are countries that rely on one single supplier and are supplied by one single gas pipeline. They can hardly expect to have a competitive market. For this reason, there are often high price differentials, or an unsatisfactory degree of price convergence. In some regions of Europe, such as in the North-Western part, the situation is rather good, but South-Eastern Europe is lagging behind’’, Nitzov told Natural Gas Europe in an interview.
Therefore, he continues, consumers in EU cannot fully benefit from natural gas if the market is not competitive, and the market cannot be competitive without availability of technical connections, i.e. the infrastructure, and without opening the infrastructure network to suppliers and consumers.
What is the main task in the Agency's work programme for the next two years concerning natural gas?
Well, we could say that the main task consists in assisting the implementation of the EU's Third Energy Package, including the implementation of the EU Regulation No 347 which was adopted in 2013. The Gas Department of the Agency addresses the matter from several viewpoints or work areas. The work areas are the development of network rules (codes), their implementation and monitoring, market monitoring (which should not be confused with the market surveillance, which is performed by another Department – in market monitoring the department works on the annual reports which analyse the openness of the market, whether consumers are benefitting from the implementation of the EU's third energy package), and the development of natural gas infrastructure. Also, we are helping work on the creation of a good Gas Target Model. In short, the main task is to make sure that gas moves throughout Europe without barriers, that access to infrastructure is on fair terms, and that consumers ultimately benefit from this mechanism. The Agency plays a leading role at a regulatory level in the implementation of a common energy market, by complementing and coordinating the work of NRAs in these areas.
How is the Agency ensuring a higher number of alternatives and better prices for natural gas for the European citizens?
The Agency is working on the removal of the “compartments” within the EU market, meaning the elimination of the barriers between the regions and the Member States in the gas market, so that the gas prices would converge and the number of gas suppliers in each region would increase. Consumers cannot fully benefit from natural gas if the market is not competitive, and the market cannot be competitive without availability of technical connections, i.e. the infrastructure, and without opening the infrastructure network to suppliers and consumers. This would eventually lead to greater competition in the market and thus to more alternatives and fair prices.
The proposed Energy Union package foresees a stronger role of ACER, which implies the reinforcement of ACER’s powers and independence. Is ACER ready for this role?
There have been some discussions about this matter, however the decision is up to the Member States. Although Agency is rather young, I think it has established itself as a reputable body that is overall performing positively and is fulfilling the tasks it is responsible for. This is also what is expressed in the external evaluations of the Agency. Should new responsibilities be assigned to the Agency, it has to be ensure that we also receive sufficient resources to do the additional work.
What are the major cross-border impediments to the creation of a seamless internal market?
The matter could be addressed from two aspects. Firstly, the market is very concentrated, as it is essentially impossible to move gas between a number of Member States because infrastructure is inadequate. Secondly, even where gas can be moved between countries, there is in many instances a high concentration on the supply side. From the Agency's market monitoring report it emerges that the majority of Member States have not reached the target level of competition in the market. To underscore: quite often the market is very concentrated, in the hands of few suppliers, and the so-called HHI index is very high, i.e. the level of competition on the supply side is very low. There are countries that rely on one single supplier and are supplied by one single gas pipeline. They can hardly expect to have a competitive market. For this reason, there are often high price differentials, or an unsatisfactory degree of price convergence. In some regions of Europe, such as in the North-Western part, the situation is rather good, but South-Eastern Europe is lagging behind. Yet another aspect is the proper use of available infrastructure “connectivity”, which implies the use of network codes for non-discriminatory access to the capacities; in brief, not only the physical presence of connections, but also the ability to use them to the best degree.
Which measures has the EU undertaken over the last several years to facilitate the security of gas supply in the EU?
The Agency does not have many specific tasks concerning security of supply per se: it is essentially a participant in the EU-wide Gas Coordination Group. However, an important element on our agenda is to assure that a proper cost-benefit analysis (CBA) is carried out for infrastructure projects, and that this analysis takes very much into consideration the expected improvement of security of supply. Thus, we provide written opinions on this matter and are working on improving the CBA methodology and the guidelines on how CBA should be carried out, and issue relevant recommendations how security of supply should be taken into consideration when developing gas supply infrastructure.
How would you rate the 3rd Energy Package according to the achievements scored so far?
Overall, the 3rd Energy Package is a major improvement in terms of the legal structure of the EU gas market. Important elements of the package have already been accomplished, but there are others which cannot be fulfilled only by adopting a paper: the process has to be regularly followed “in the field” and its real progress monitored.
Has co-operation between the EU National Regulatory Authorities for Energy improved since the establishment of Your Agency in September 2009?
I think the best answer to this question can be given by the National Regulatory Authorities (NRA) themselves, but so far I think the results of work performed by the Agency are positive. What the Agency is doing is to help assure the cooperation among the NRAs, as it is a process that needs to be carried out and monitored on a daily basis. So far, the output is very positive and we can say that things are really moving forward.
What are currently the most important infrastructure projects in the European Union concerning natural gas?
The key for analysing the projects is the cost-benefit analysis, rather than the scale of the projects or their budget. A mechanism that works in a given environment might not work in another, thus it is necessary to perform a specific, project level cost-benefit analysis, which is a fundamental tool to understand what should be prioritised. The list of projects which are of common interest to be implemented is made by the regional groups established by Regulation (EU) No 347/2013, not by the Agency. Our duty is to issue an opinion about this list focusing on several methodological and procedural aspects, to participate in the discussions, to collect information, to conduct inquiries and so on. Generally, we are trying to improve the outcome of the project selection process. Again, as each region or area has its own priorities and the whole process is very dynamic, it has to be properly managed by the regional groups, while the projects themselves are ultimately implemented by the industry.
Can you provide your opinion on what measures are being taken to facilitate gas supply in the Balkans?
Concerning natural gas, one thing that hinders the progress in the Balkans is the fact that markets are not interconnected, while individually being quite small. If you exclude Romania, which is in a better position as it has more significant domestic gas supply compared to others, gas demand in all other countries is in the range of up to 3 billion cubic meters of gas per year. Total gas demand all over the Balkans is in the range of 12 to 15 billion cubic meters per year. This is the scale of one relatively small pipeline – just one high pressure pipeline - or two to three LNG terminals. Without connections to the wider European market and the pan-European infrastructure network, it will be very difficult to resolve the issues of natural gas in the Balkans. Also, the lack of intra-regional cooperation and diversification of gas supply is a serious problem.
Drazen Remikovic