Gas Infrastructure: “No Politics, Please”
The chair of the administrative board of the Slovenia-based Agency for the Cooperation of Energy Regulators (Acer), Razvan Nicolescu told the European Gas Conference in Vienna late January that he had no time for political challenges.
Recalling Acer's achievements in the six years since it was founded, he said politics should be taken out of doing business in the energy field. “I think we should speak more about the customer challenges than the political challenges,” he said. “We [Acer] intend to address the customer challenges in Europe by creating a functional, integrated internal gas and electricity market.”
He said much had to be done to have a functional gas market in Europe. “We need to have more competition, keeping in mind that the market is designed to better serve the customers – we need more competition, more gas sources in Europe,” he said.
Moreover, he said, more interconnectors need to be built, as well as a more coherent regulatory approach: “I can't believe we can have a functional market in Europe regulated by 28 regulatory authorities in different ways,” he said.
Calls for doing things a different way, he explained, often means butting heads with individual countries in Europe. “It's time to give up hypocrisy and say that we have to build a functional energy market, and we have to take measures now if we are to have it built,” he said.
Dealing with uncertainty
A senior executive at Austrian OMV’s gas transport business, Reinhard Mitschek, pointed out that when it comes to politics, one must deal with the uncertainty of the future regarding factors like the price, and competition between primary energy sources. To plan and realise infrastructure, he said, took five to ten years.
In connection with speculation regarding gas demand and consumption, he said, “In order to analyse the requirements for gas imports, we also have to think about gas production within Europe, which will considerably decrease... especially in the Netherlands and the UK, so that means that additional gas quantities will be required, even if gas demand stagnates – which we don't believe will be the case.” OMV is developing gas resources in Romania.
“Secondly, we have to take care of the integrity of existing infrastructure and complement it in the most intelligent, most economic way,” he said, “minimising transmission risk, cost for logistics, because prices are under pressure as is the market, and we have to see where we can increase competitiveness in the whole system.”
Interconnectivity: room for improvement
Of efforts to implement a gas corridor in southeast Europe, he said that so far no one had succeeded. “We hope that the interconnectors will be established in these countries to be successful for at least a limited gas volume.”
Regarding the overall success or failure of interconnection in Europe, Mitschek noted that there are still countries in Europe who are independent of gas imports while its neighbour is completely dependent upon gas imports. In that situation, he said, "there is room for improvement with respect to interconnectivity.”
Challenges to long-term thinking
The CEO of Italian transmission system operator (TSO) Snam, Carlo Malacarne, described the challenging scenario that he believes the European natural gas industry is facing – challenges that he says go beyond the global economic growth outlook.
“These include decreasing gas demand, due to the uncertainty of demand for gas in the emerging European Union; national environmental policies; growing supply; volatility; the perception of potential supply shortages; and an increased dependence on import and competition, especially with Asian countries, for attracting LNG supply.”
All these elements, said Malacarne, constrain the European gas industry's ability to maintain stable, long-term perspectives.
Additionally, he said the supply situation, with progressive reduction of the share covered by take-or-pay contracts and the rising liquidity of spot markets, was pushing market players to take a short-term perspective, increasing the share of spot and reducing the long-term commitment.
After the conference had ended, Italian supplier and major Snam customer Eni had agreed with Gazprom to take more of the gas under its take-or-pay contracts than it would probably have otherwise done.
In a January 22 statement, after a meeting between the two companies’ CEOs, Gazprom said the parties “discussed European gas market trends in light of the current oil prices. The companies confirmed their intention to continue closely cooperating in the Italian gas market and expressed their readiness to increase Russian gas sales under the existing long-term contracts.”
Changing role of TSOs
In the changing milieu, Malacarne said that the traditional support of TSOs in investment decisions, implying the long-term commitment of shippers, was not as significant as it was just a few years ago.
He added, “The lack of demand visibility negatively affects the appetite of producers to invest and increase their deliveries to Europe.”
Growth, he said, appears to have reached its full potential in the EU, while long-term perspectives for growth are uncertain. “In this scenario, the natural gas industry is compelled to find a new shared solution to establish full industrial and political confidence between EU consumers and non EU producers,” he said, adding that was the building block for the development of a secure gas supply to Europe, and for sustaining long-term gas demand.
A call for interconnection and storage
“This highlights the need to foster a stable relationship with long-term supply partners for a common and integrated European gas market, where global demand may result in much more attractive demand than national volatile demands. In this regard, it's mandatory to ensure the EU has both the necessary transportation interconnection and the storage flexibility to achieve a fully integrated EU gas system, supporting market dynamics and enhancing natural gas' competitiveness,” he said.
Regarding the possible evolution of the gas infrastructure network, Malacarne said the effective integration of European gas networks, fostered by the development of new energy corridors, was key to guaranteeing security of supply and to enhance gas' competitiveness versus other more polluting energy sources.
“It could also significantly increase competition in the gas market,” he pointed out, “and promote a smooth transition towards an efficient and sustainable low carbon economy.”
Beyond unbundling
Malacarne explained that the role of TSOs had been transformed from pure asset owners that operate and maintain infrastructure, to market facilitators which provide market-oriented services, now catering to the needs of shippers and final consumers.
Now, he said, TSOs have become pan-European players with business development opportunities beyond their own borders.
“Europe needs to fully accomplish a close link between European energy corridors and import routes, said Malacarne. “Today, some corridors may be fully developed only if new south-north and east-west flows are activated, as a result of the connection of north African countries and new Mediterranean, Middle East and Caspian gas sources.
The EU investment priorities should focus on what is needed to create additional flexibility and diversification of supply, as well as to provide more efficient and fluid interconnectivity, he said.
Drew Leifheit reporting from Vienna; edited by William Powell