Does EU gas policymaking take customers’ interest into account?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

A customer is filling up his car with Russian natural gas at Gasum gas station in Tattarisuo, Helsinki, Finland. [Marrku Ojala/EPA]

Ahead of a reform of the EU rules to cover offshore gas pipelines, in its latest attempt to regulate Russia’s planned Nord Stream 2 pipeline, Danila Bochkarev offered his comments.

Danila Bochkarev is Senior Fellow, EastWest Institute. The opinions expressed in this article solely reflect the views of the author, not of his organisation.

The European Commission is about to launch a revision of the Gas Directive in order to apply the Third Energy Package’s rules to all import pipelines supplying natural gas to the European Union from countries outside the EU’s internal market.

Currently the EU’s energy laws for the internal market do not apply to any such import pipelines– a fact recognised by the Commission. New amendments would require the owners of offshore gas infrastructure to achieve effective unbundling and allow the third-party access.

This proposal will go to a vote on 8 November at a meeting of EU Commissioners. If accepted, it will go to member states and to European Parliament for approval, Reuters reported on Saturday.

Proposed amendments are also expected to mitigate security of supply concerns and make sure all infrastructure projects are in line with otherwise non-binding Energy Union’s goals.

However, the existing regulatory framework (‘software’) and energy infrastructure (‘hardware’) has already proved itself to be a highly effective means of reinforcing security of energy supplies and proving European customers with diverse, affordable and reliable energy supplies.

The European Agency for the Cooperation of Energy Regulators (ACER) rightfully noted that the European gas wholesale market “continued to progress and market dynamics seem to work better and better with gas prices registering a “constant decline … which is the result of market fundamentals and increased gas-to-gas competition”.

As a result, consumers in Europe have a vast of choice of affordable alternative supplies – both in the form of LNG and pipeline gas –and they appear to feel comfortable with this choice.

By the end of 2016, EU-28 re-gasification capacity stood at around 205 bcm/year amounting to 45% of EU demand and 60% of EU gas imports and offering more than 150 bcm/year of unutilised capacity. This capacity allows the full replacement of pipeline imports from any of Europe’s largest natural gas suppliers.

Last year Norway and Russia respectively exported to the EU28 107 bcm and 153 bcm. Furthermore, pipeline interconnectors also contributed to a free flow of energy across borders and a secure supply in virtually every EU country.

In 2015 Central and Eastern Europe (CEE) reverse flow capacity stood at about 147 bcm/year, while a further 42 bcm/year of new interconnection capacity added within Eastern Europe and between Central and Western Europe in 2010 – 2015 with the help of EU funding available under the Connecting Europe Facility (CEF).

Furthermore, implementation of Projects of common interest (PCI) had already proved its’ efficiency and is operating comfortably within existing regulatory framework. The increased inter-connectivity has led to price alignment almost everywhere in Europe with the higher priced markets now almost equal with the cheaper ones, and so making gas more affordable.

This connectivity increased the sense of confidence and the behaviour of buyers has also changed. They no longer seem afraid of supply cuts and the security of supply issue was downgraded to one of secondary importance, at least in the “mature” European markets.

Natural gas is therefore becoming an ‘ordinary’ source of energy measured solely by its economic value. It can be sourced almost everywhere and its source of origin will be no longer a matter of concern for energy importing countries.

An indication of this more relaxed attitude of European consumers is their interest in buying larger quantities of cheaper pipeline gas and their lack of appetite for LNG as they felt confident that they always have a backup supply option. That shows rational commercially-driven behaviour, unaffected by the rather alarmist political discourse around security of energy supplies to Europe.

In a lunchtime press briefing on 1 February 2017, EU Commissioner Maroš Šefčovič confirmed that in regard to energy security, the situation has significantly improved in 22 out of 28 countries.

Energy Market has proved itself as the best system to deliver security of supply, while absolute majority of existing insecurities comes from an incomplete implementation of EU rules.

In its’ response to the Commission consultation on an EU Strategy for liquefied natural gas and gas storage, Shell rightfully noted that “security of supply issues in some European countries are created or exacerbated by the very slow adoption of the European Regulatory framework”. A well-functioning market is the “best way to deliver security of supply,” – concluded Shell.

Last but not least: proposed amendment is not just a small technical procedure and raises a number of legitimate questions.

Does these changes take customers’ point of view? How does this regulation improve the consumer’s energy security, choice of supplies and maximise economic benefit for the EU citizens? As we see, existing EU regulations and single gas market are fully sufficient to regulate supplies from the third countries and are already able address all relevant consumers’ concerns.

Is the Commission trying to achieve regulatory flexibility? In that case, these rules a la carte could create a precedent for politisation of the energy sector and this attitude might have damaging effects. Severin Fischer of the Center for Security Studies (CSS), ETH Zurich, has rightfully said that “Over-politicization of natural gas as security problem leads to non-market behaviour… higher prices and increases investment costs.”

Amendments to the Gas Directive, if they affect gas transport from third countries to the EU, would effectively be a qualitative expansion of the EU internal market law – certainly not a small technicality which might also have consequences for the Southern Gas Corridor and Europe’s relations with the key energy exporters in its’ neighbourhood.

Europe’s partners might also have to ask themselves whether the EU rules – generally seen as an example to follow – can be trusted if they are so easily changed according to rapidly evolving political calculations? If the EC starts to interpret its own rules politically, who will prevent the third countries or even EU member states from doing the same? Too many questions and not enough answers…

One thing is clear – this process is too important and proposed changes should not be discussed without proper consultations with all stakeholders. In the work programme for the Commission, President Juncker has already announced that a proper impact assessment would need to be performed for any change to the gas directive. This is also in line with the Commission’s own better regulation guidelines.

EU energy market is already bringing benefits and one should be cautious about trying to re-install Europe’s ‘energy software’. ACER rightfully notes that “current regulatory model should be allowed time fully to deliver its positive results. Regulatory stability should be encouraged.”

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