Austria's E-Control: Realizing a More Liquid Wholesale Market

The main tasks of E-Control Austria, the regulator of the natural gas and electricity market in Austria, involve Austria's regulatory framework, the designing of the market regime, and regulating third party access conditions to gas and electricity infrastructure

One main challenge in 2012, according to E-Control's Managing Director, Walter Boltz, was linked to a huge project resulting from implementing EU's Third Energy Package in Austria to set up a new gas market regime in Austria. It is for that outstanding project that E-Control has been nominated for "Project of the Year" at this year's European Gas Conference to be held in Vienna, Austria 29 January - 1 February 2013.

"The main goal to be reached with the new market design is to realize a more liquid wholesale market in gas," says Mr. Boltz, explaining the background of the project.

Of the Austrian gas market, he says one characteristic is that the country has a huge amount of gas transiting through it. "We have our domestic demand for gas in Austria, it's about 9 bcm, while for gas transit volumes we have up to 100 bcm of gas, which is transported through Austria to Southern and Western Europe through Austria."

The main challenge in this project according to him was to eliminate all trading barriers between transit and domestic transport by a common and fully harmonized regulatory regime which went into force as of January 2013 successfully. He adds, "Therefore, E-Control had to involve into the preparation of the regulatory regime all international shippers and traders of which there are around 100 international market participants.

"If one looks at the figures of the old market regime in Austria, we had about 30 Balance Group Representatives active in supplying activities in the domestic market. Now, in the new regime we have about 100 active Balancing Group Representatives registered for trading and supplying activities in the Austrian market, so one can see that the whole discussion process and all of the legal documents had to be declared, both in English and in German, which was a huge organizational challenge for the Authority," he explains.

"The discussion process involved Italian, French, UK and German shippers, so we had to do processing in German and English language. Legal documents, decisions and ordinances by the Authority also had to be prepared in both languages and we had to finalize the process till summer to meet the deadline so that market participants could implement the new rules, because IT systems had to be changed and systems providers, like the new Market Area Manager Gas Connect Austria and the operator of the Virtual Trading Point and Gas Exchange CEGH, had to implement the new IT systems. Suppliers and Traders had to finalize all necessary registration processes under the new regime.

"It worked, because of highly motivated and fully committed system providers and everything was ready by the end of the year and now the new regime has been working successfully since 1 January 2013," said Mr. Boltz, who answered additional questions about the project from Natural Gas Europe.

With the involvement of so many players, how does one go about devising a plan like this? What was E-Control's approach?

We had to prepare, discuss and consult the new rules, the new market regime with all these stakeholders all along the value chain of natural gas: transmission grid operators, of which there are three in Austria; we have 20 grid operators on the distribution level; five storage operators; and then we have suppliers to final customers; and those international traders who use the Austrian market only for trading activities.

The challenge was to consult the new regime with all of these groups in a transparent way. In the first half of 2012 there were more than 100 meetings to be organized by our gas team with all these stakeholders, because we wanted to find out what their requirements and what their expectations were on a more liquid wholesale market.

It was successfully implemented, which is not only a success for the regulatory authority, but also for the whole gas industry, because all of the implementation done by the system providers like the Operator of the Virtual Trading Point, CEGH or the Market Area Manager Gas Connect Austria. They realized the implementation by the end of the year, from the simplification of the regulatory framework, which was in mid 2012; they only had half a year to implement this in their systems, so it's also a success for the industry and for all of the market participants.

How satisfied do you think they are with this new regime?

In the old transit regime in Austria it was necessary to book on a point-to-point basis, so if you wanted to transport gas from A to B, then you had to book for each pipeline capacity to trade gas at physical points – like Baumgarten – the former major trading point in Austria. For supplying final customers a different regime was applicable. The big disadvantage of the old separated regime was that suppliers had to book in each pipeline capacities separately to bring the gas to different trading point within Austria. .

Now these barriers have been completely eliminated, because now we have one Entry Exit regime in Austria with one virtual trading point in the Market Area East. The western gas grids in Tyrol and Vorarlberg will be integrated into the German NCG Market Area from 1 Oct 2013. It's the first time to really integrate different national markets on a cross border level in Europe. The benefit under the new regime is that as a shipper you enter the gas system like entering a big "gas lake," by booking an entry capacity at a cross border point. Then you can trade the gas throughout the entire gas system without booking any further capacity in a specific pipeline within the market area. If you supply final customer no further bookings have to be made. If you transit the gas to another country, you only have to book “exit” at the border of the market area. This is the advantage of the new regime whose aim is to concentrate all gas trading activities at one single trading place which is operated by the Central European Gas Hub, who not only operates the Virtual Trading Point but also is the operator of the Gas Exchange.

With the idea to concentrate of gas trading at one single place we hope to increase liquidity on the wholesale level not only in Austria but also in neighboring countries like countries like Czech Republic and Slovakia towards one mutual trading center here in Southeast Europe.

In the next month E-Control will monitor in detail if liquidity in the market could be improved under the new market design and which additional measures or modifications are necessary to further eliminate existing market entry barriers to make it as easy as possible to use Austria as a Trading place. If this leads also to more competition in the retail market the final gas customers will benefit from these new rules.

How revolutionary is this in the context of the European gas industry?

I think this new design now fully in line with the requirements of the Third Energy Package to realize more liquid wholesale markets in gas. The question remains whether the Austrian market itself, because of its small market size and limited number of sources, could really be a liquid market. More or less it could be said that the liquid wholesale market depends on the specific amount of gas volumes traded, connected to more than three sources with a lot of independent trading partners. .

The market size in Austria is not big when compared to the German, French or UK gas markets. The question will now be if the Austrian market is big enough to establish a really liquid market. We have some doubts and this is why we're attempting to come up with concepts to combine entry-exit zones with neighboring entry-exit zones, because this could have potential for other countries around Austria like Slovakia, Hungary or Slovenia, who have small gas markets as well. So it has to be further analyzed for the future if such countries should engage in closer cooperation among their gas markets and combine cross border entry-exit zones into one market area.