Despite Skepticism, Market Integration is On the Rise, Say Experts
Signs of market integration are often underestimated, as price convergence across Europe clearly indicates a tendency towards a single market. Nonetheless, some more efforts are needed, as difficulties remain around the corner, with opposite interests and positions hindering the efforts of ENTSO-G to come up with a Network Code on Harmonised Transmission Tariff Structures for Gas (TAR NC), a cornerstone of the integration process.
This was a view emerging from EUROFORUM, which is taking place in Berlin this Tuesday through Thursday.
“There are several remaining issues, we have more issues than in any other code before,” Stephan Kamphues, President of ENTSO-G, commented, referring to the TAR NC.
The “remaining issues” stem from the difficulties to garner support and find a solution that is in line with market participants’ needs and requests.
“We are working to find a solution supported by the market.”
Specifically, Kamphues mentioned nine points to address: price certainty, tariff setting year, cost allocation methodologies, tariff calculation model, fixed versus floating price, timing for discount for interruptible capacity, definition of transmission services, one-off capacity reset option, application of the NC to existing contracts and multipliers.
“The tariff issue and the capacity issue are really really difficult nuts to crack,” the President of ENTSO-G concluded.
The Association of Europe’s TSOs should formally submit the final draft Network Code to ACER by 31 December 2014.
FUNCTIONING MARKET
On the other hand, panellists at the conference suggest a strong tendency toward market mechanism over the last years.
Kamphues said the European Commission is now focusing on the consolidation of hubs, which is a difficult but necessary step toward a more market-oriented gas environment.
Other officials confirmed Kamphues’ statement.
“We are getting there, we have to address the countries that are not particularly advanced,” Beate Raabe, Eurogas' Secretary General, said on Tuesday morning.
Wolfgang Peters, Chairman of the Board of Directors at RWE Supply & Trading, added that North-West Europe is in advance phase, with gas hubs playing a central role. According to Peters, the rest of Europe has to catch up, with a divide between South Eastern Europe and Central Europe.
South Eastern Europe is the area lagging behind, while some other member states are rapidly moving forward with their plans.
“Some Central European and Mediterranean countries are … in a transition phase,” the Chairman of the Board of Directors at RWE Supply & Trading explained, referring also to Spain, Portugal and Poland.
Despite the delays, panellists said that Western Europe is setting the pace of the transition toward more functional markets. Several signs suggest that market integration is on the rise, Peters commented.
“If you see at location-based differentials, they are extremely narrow,” Wolfgang Peters, Chairman of the Board of Directors at RWE Supply & Trading CZ, said during the conference.
WHAT’S NEXT?
The main challenge for Europe is to come up with a coordinated energy strategy, overcoming national interests.
“It is not a matter of financing for connectors to be complicated, the issue is politics… The actual problem is the cooperation between Member States,” said Eurogas’ Raabe, referring to the ongoing tensions to find a rational allocation of LNG terminals in the Baltic Sea.
Against this backdrop, coordination of both countries and market participants will be pivotal for the future of gas in the energy mix. In this sense, the message is quite glaring and clear: market participants can cooperate, capitalising on the tendency towards a well functioning market, or tail off under the weight of competitive pressures from other industries, mounting rivalries between companies and national industries too.
Sergio Matalucci
Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci