Industry Warns Of Missing Links For Cross-Border Gas

Amid growing demand for natural gas, politicians are being urged to improve networks as a regional approach to cross-border connections is still "sadly missing," industry representatives told a Brussels conference.

In spite of the last round of EU energy liberalisation talks, a strong national focus still prevails in the gas business, industry representatives said.

The third energy package  was in itself a positive step but may well turn into a missed opportunity, said Marcel Kramer, CEO of Gasunie, a Dutch gas infrastructure company.

Regional cooperation under the third package is highly promising but as a national focus still prevails, it leads to a patchwork of regulations between nations and within the various national gas markets in the EU, he added.

From Kramer's perspective, much will depend on how member states and other stakeholders will respond to the challenges of regionalization in the next few years. More bilateral cooperation, and not just talk, is essential, he stressed.

"Several market players have already undergone full ownership unbundling and operate with open access to their infrastructure. The regulatory burden could have been reduced to allow already unbundled players to serve the whole market with maximum efficiency and flexibility," Kramer opined.
Germany singled out

Other speakers singled out Germany as the country where the investment climate represents an obstacle for developing the North-West European market. Interest in regional customers like Denmark is high, but such markets cannot be accessed without integrating Germany, they argued.

Enrico Giglioli, associate principal at consultaning firm McKinsey, said "Germany is below the line" as far as the investment climate in the gas sector is concerned. He also stressed that the third energy package represents a step forward compared to the previous legal situation but added that many challenges still remain to improve markets. He called for the issue of improving the investment climate to be addressed now, because it will take many years to develop a fully operational gas infrastructure.

"We suggest a single forum for the European North-West region to be established, in which member states, regulators, TSOs [Transmission System Operators] and other market parties are represented in a balanced way. The intention is to remove barriers," Kramer said.
Barroso recovery plan under fire

Speakers also criticised the 1.4bn euro European Economic Recovery Plan for energy infrastructure projects for "distorting" the market, as it provides funds for projects which compete with others that could be developed under normal conditions.

With increased attention paid to energy supply security following the January 2009 gas crisis between Russia and Ukraine, there is a risk of agreeing measures that do not sufficiently take into account the other objectives of energy policy, warned Jens Schumann, CEO of Gasunie Germany.
Commission provides 'diplomacy' with third countries

Philip Lowe, who was recently appointed director-general for energy at the European Commission, said that markets did not only function in terms of the capacity of existing players to compete with each other in an open and fair way. Physical interconnection between markets must also exist, he argued.

"The crucial issue would be for us that the signals provided in this new system to investors are such that the investor interconnection is done," he said.

In this context, he said it was important to support the development of physical infrastructure, not just within the EU network, but across the continent.

"That requires a lot of diplomacy and commercial promotion with our partners outside the EU, and that is certainly something which the present Commission will engage in a significant way," Lowe said.

"Not all problems are about funding. They are about creating the conditions under which private and public funding sources can combine, and that requires [paying] a lot of attention to the regulatory framework at national level, to facilitate investments and cross-border investments," he said, adding that it sometimes takes up to ten years to obtain environmental authorisation for cross-border interconnections like those that the Commission is promoting.

Answering a question from a Russian diplomat about the so-called 'Gazprom clause' in the third energy package, Lowe stressed the non-discriminatory nature of EU legislation, adding that the Commission wants to see Russian companies on the same level playing field as EU market players.

Michael McGehee, director of pipeline certificates at US regulator FERC, said that in recent years the US regulatory system had become more dynamic and more responsive to market initiatives.

As a result, he explained, massive infrastructural developments followed. In the last decade alone, his service has authorised 14,500 miles of pipelines, 105 billion cubic feet of new pipeline capacity and total investment, all private, of over 40 billion US dollars.

One of the keys to this success is the open-access process, he stressed. No public funds were used, he told the audience.

Europe lags behind the US in developing gas supply infrastructure. The Clingendael Institute, a Dutch think-tank, reports that over the last decade, Europe has added a mere 1,000 kilometres to its transnational pipeline network. In the US – where unbundling was completed in the early 1990s – private companies have built around 30,000 kilometres of new pipelines over the same period (in response to approximately the same growth in demand for gas).




On 10 October 2008, European energy ministers struck a compromise deal on a European Commission proposal to open up the EU's gas and electricity markets.

The EU executive's original plans for the so-called 'third energy package' had sought to ease the stranglehold of former national energy monopolies by forcing them to sell off their transmission assets and keep these activities separate from energy production (so-called 'ownership unbundling').

Several member states, however, decided to grant their former monopolies the right to retain ownership of their gas and electricity grids in exchange for strict outside supervision. A clause was inserted to prevent energy producers from buying up the transmission businesses of energy companies in European countries where full unbundling has been introduced .

The EU budget allocates only around €250 million a year to energy infrastructure under the 'Trans-European Networks for Energy' programme (TEN-E). The EU's economic recovery plan, adopted in 2008, earmarked €1.4 billion for energy projects, with parts of this going on connections between national power grids and gas pipeline networks.

Now the Commission is suggesting that the EU should set up a new fund for the next budgetary period, which starts in 2014. This 'energy security and infrastructure instrument' could dispatch €1-2 billion a year.