Energy 22 March, 2018 11:00 am   
Editorial staff

CEEP: Opportunities and challenges of the gas directive

On March 16th, a conference called “Reviewing the Gas Directive: Opportunities and Challenges” was held in Brussels. Speakers discussed advantages and disadvantages of the new law and implications it may have on the controversial Nord Stream 2 project.

Benedikt Klauser, a Policy Officer of the European Commission for DG Energy, Unit B2 said that the key idea of the Gas Directive amendment is to guarantee level playing field for all market players. Last year, it has become apparent that the Third Energy Package applies only to internal pipelines – legal loophole was identified. In this context, there is a paradox that it has been already applied to onshore connections.

– The more complex situation exists, concerning offshore pipelines. The EC addressed lack of clarity in this field by the proposal of amendment. In order to make it applicable to gas interconnectors with third countries, it proposed changing the definition of the interconnector. In a nutshell, it is extended by any pipelines linking MS with third countries. MS are also provided with the possibility to grant derogations to existing infrastructure. The limited scope of change – does not require additional Impact Assessment – said Klauser.

He added that the objective of this changes is to solve unclear situations which might be discriminatory. It provides a common framework for rules irrespective of the origin of the pipeline. By strengthening the aspect of solidarity among MS, it also implements the Energy Union.

– The benefit of such change will be increased legal clarity itself. Furthermore, while analysing the NS2 impact on the internal market, it should be taken into account differences between North-Western Europe and South-Eastern. Moreover, the question of the applicability of the EU law in Exclusive Economic Zone has secondary importance – crucially the EU law is applied in the territorial waters of MS – said Benedikt Klauser.

Dr. Frank Umbach, Research Director at Centre for Energy and Resource Security, King’s College London said that energy security landscape has tremendously improved. From the perspective of 2010 when Regualtion on Security of Gas Suply was enacted, it would seem almost impossible that it has been achieved so much. However, it is still insufficient, mainly due to changes on the global gas market. – Still, we don’t have the EU internal gas market – instead we have few differing regional markets, liquid north-west and monopolized by Gazprom south – east. Several interconnections still have not been implemented, particularly in South-Eastern Europe – said the expert.

It should be noted that legal acts are instruments for the fulfillment of political strategic objectives. – They were clearly focusing on enhancing SoS dimension, what is unwanted consequence gas crises – 2006 and 2009. Therefore, the Gas Directive was from the very beginning a tool to achieve certain objectives. It is based on the EU member states consensus on the idea of diversification of supply and reduction of Russian market share. The argument that NS2 should be left to the market forces – contradicts political objectives. Proper functioning of the internal market is still not a case. In 2010 it looked that NS1 will be the only new pipeline. This is not the case anymore also: besides NS2, we have Turkish streams and these pipelines will have an important impact on the gas market – Umbach continued.

Umbach pointed out that the argument that currently within the EU we have a pool of gas – commodity once supplied to the EU can freely circulate within the internal market is not valid, as we do not have EU gas market. If NS2 were built, the commerciality and profitability of lacking interconnections would be even lower what further prevent their construction.

The argument “leave it to the market” concerning competition between LNG and Russian gas is also misleading. We should understand, how it is possible that Russian gas is so cheap. NS2 will be connected with other pipelines within Russia, cost of only one is estimated at 20 bln USD. Private companies would need to price such investments. It is not happening because it is heavily subsidised. To sum up, we see competition between subsidized Gazprom and private LNG companies from the US. Currently, LNG import capacity – 200 bcm – is used only in 30%. Yamal LNG may be exported, what means that dependence may rise even further. Paradoxically, LNG terminals are under the Third Energy Package, but import pipelines not, what poses a question about level playing field on the market.

– We are witnessing situation, that the EU is becoming more import dependent, even though tools to avoid such situation were enacted – they are not sufficient – he said.

In this regard, legislation should address the different legal situation of import pipelines and LNG terminals. Another problem is also exemplified by OPAL. Obviously, the operator has the interest to use it to full capacity. But as a result of OPAL exemption, which might be used also in case of EUGAL pipeline, more than 60 bcm of gas will be exempted, what has an impact on the market. In fact, an exemption becomes a rule. It also raises questions of southern states: why Germany has been granted exemptions while South Stream was prevented? Under what kind of circumstances they are granted?

– None European expert would doubt that we need Russian gas – we should, however, choose to which extent and under what kind of rules – finished Umbach.

– From the perspective of the Energy Community, the definition of “interconnector” is not adequately defined. It has become clear since 2011, when several Energy Community contracting parties implemented 3rd Energy Package – said Dirk Buschle, Deputy Director at the Energy Community Secretariat.

Despite the fact that most of the interconnectors within the Energy Community is onshore – problems are parallel. Lack of clear definition is a regulatory gap on the interface between the EU law and Contracting Parties law. – It affects dissemination of the EU law to third countries – said Buschle.

In practical terms, it caused series of legal problems. It does not allow the implementation of network codes as well as use of solidarity principle. Similarly, our projects cannot be a project of common interest according to TEN-E regulations. The process of granting art 36 of Gas Directive exemption for TAP in Albania, also required a lot of creativity on the side of the Energy Community to overcome this gap.

Proposed amendments to Gas Directive is precisely what Energy Community requires. It will close the legal gap. Few problems will be unsolved however concerning governance. What is missing is a good and working framework for transborder regulatory cooperation. In order to reach parallel mode, governance should be more robust. In case of Energy Community an improvement would be establishment of joint institutions as last resource to rule on issues between EU member states and Contracting Parties.

There is a pressing need to adopt the amendment to safeguard coherent application of the EU law. It’s interesting to see how painful is this idea to market participants who are taking advantage from the existing regulatory grey zone – said Ieva Kuode, Director for development at EPSO-G.

Lithuania has been exposed to the dominant supplier for years and made a tremendous effort to implement 3rd Energy Package and construct LNG terminal. The functioning market is the best guarantee for the security of supply. Therefore, Baltic countries are working on the regional market – said Kuode.

The amendment of Gas Directive is a practical instrument to enhance the security of supply. It would have an effect on the entire EU market. It is difficult to understand the efforts to prevent such change. It finishes legal ambiguity concerning interpretative practices on interconnectors. Regulatory clarity and transparent conditions would make the market even more attractive for investors. Identified blind spots should not be left unsolved.

Regulatory certainty is key to investors, existing grey zone encourage to take high risks and imposes high prices. The real risk is misusing legal vacuum. Why transparency and fair rules expose problems? – asked Kuode.

Another issue is an impact on existing infrastructure. Legitimate expectations are protected by derogation possibility. In this regard, it is not defined in a complex way. The introduction of transparent procedures on granting of derogations is required – Kuode finished.

Source: CEEP