Creating a Unified Gas Market in
the European Union:
The Long Path Toward Liberalization
VII KAZENERGY Eurasian Forum
2 October 2012
Laurent Ruseckas
Senior Associate, Global Gas
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Overview of the liberalization process
• Since the mid-1990s the European Commission has been pushing for
European energy markets to be opened up, liberalized, and unified
• Policy has focused on gas and electric power
• Markets for oil, oil products, and coal seen to be already sufficiently open
and competitive so as not to require “special” measures
• In legal terms this campaign began with the First Electricity Directive
(1996) and the First Gas Directive (1998)
• It has continued since that time through subsequent directives and
through enforcement of EU competition (i.e. anti-trust or anti-monopoly)
law
• The driving goal of these reforms: To reduce electricity and gas prices
paid by consumers
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3
A unified market and a liberalized market:
Two sides of the same coin
• One key problem identified in the 1990s was the dominance of
incumbent monopolies that controlled import and onward sales of gas as
well as transmission assets, and were shielded from competition
•
• Progress toward the overriding economic objective of the EU—creating a
“single market” for goods and services—was clearly impossible without
breaking up or unwinding these monopolies
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4
Timeline of EU gas regulatory change
Second Directive:
rTPA for national transmission
network and LNG terminals
nTPA or rTPA for storage
Legal unbundling
First Directive:
Principle
of
the
single
European gas market and
timetable for market opening
nTPA or rTPA on the
national transmission network
1998
2003 2004
Implementation of the Network
EU Third Package:
Code by national TSOs:
Third Directive and Gas Regulation
At the latest, two years after
Ownership unbundling or Independent
the publication of the network code
System Operator
Framework Guidelines
Creation of ACER
on Capacity Allocation
and Gas Balancing:
To be released by ACER
in July and September
2006
First
German hubs:
BEB VP and E.ON VP
Full opening of
the Dutch market
2009
Three French PEGs:
North and South (GRTgaz)
PEG South-West (TIGF)
Five French PEGs
Full opening of
major markets
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2011
2013
Further Merger
of German Hubs:
3 balancing areas
New balancing regime
In the Netherlands:
Merged German Hubs:
GTS launching a
NCG and Gaspool with full market based regime
6 balancing areas
socialising imbalances
5
Reforming the EU gas sector:
The First Gas Directive (1998)
• Immediate requirement to open 20% of retail gas market to competition
• Exemptions (called “derogations”) were granted in practice in several cases
• Third-party access (TPA) to gas transmission mandated; two options for
implementation at the national level (regulated and negotiated TPA):
•
• “Soft” unbundling of transmission and commercial functions
• In practical terms, the achievements of the First Gas Directive were
limited
• Loopholes, exemptions, and weak enforcement of state-level regulation
meant practical changes occurred only in those countries which were
already intent on liberalization
• But it very clearly pointed the way toward the future, and was a critical
first step in convincing both EU member states and the gas industry that
serious reforms were inevitable in the longer term
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6
Reforming the EU gas sector:
The Second Gas Directive (2003)
• Required that all gas consumers would have a choice of supplier by 2004
(for industry and local distribution) or 2007 (for retail customers)
•
• Requirement for negotiated third-party access to transmission, storage,
and LNG regasification facilities, with tariff methodologies subject to
approval by national regulators
• Full legal unbundling between gas transmission and commercial functions
• Although a transmission operator and gas wholesaler could still be owned by
a single holding company
• Minimum requirements defined for national gas regulators; establishment
of European Regulators Group for Electricity and Gas (ERGEG)
• The Second Gas Directive had a major practical impact
• However, implementation was uneven; in mid-2005 the European
Commission sent formal warnings for non-compliance to 10 member states
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Reforming the EU gas sector:
The Third Energy Package (2009)
• Deeper requirements for transparent and fair third-party access to
transmission, distribution, storage and LNG regas facilities
•
• Stronger bias toward full ownership unbundling between transmission and
commercial functions . . .
• . . . although the Independent System Operator option continues to provide an
alternative to full ownership unbundling
• Major emphasis on cross-border integration
• Formation of ACER—the Agency for Cooperation of Energy Regulators
• By building on the Second Gas Directive, the Third Package has had
additional impact on the gas sector, but mainly on the margins
• Competition enforcement is now the center of the action
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The Directorate-General for Competition:
The sharp end of the stick
• DG Competition is by a wide margin the most powerful body of the
European Commission, with broad powers to investigate anti-competitive
behavior and punish offenders
• Right to raid offices within the EU to seize documents and gather evidence
• Statutory right to impose fines of up to 10% of a company’s annual turnover
• Targets of DG Competition actions have the right to appeal to the European
Court of Justice—but no such appeal has ever succeeded
•
• For the past decade, DG Competition has increasingly taken a more
active role in enforcing energy regulations
• Against joint selling of Norwegian and Danish gas
• Against destination clauses in long-term gas sales contracts
• Cases launched against anti-competitive behavior on the part of many
incumbents who were shown to be blocking TPA in practice
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DG Competition actions have already
transformed the European gas market
• Joint or coordinated sales of gas by multiple producers is now ruled out
• Destination clauses are now defunct, meaning that buyers can resell
purchased gas anywhere in Europe
• Various tactics to block TPA are no longer practiced
• One result has been huge pressure on incumbents locked into to long-
term gas purchase agreements with suppliers such as Gazprom
• Are oil-linked prices the next frontier for DG Competition disapproval?
Results of current Gazprom investigation will tell
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10
Gas volumes traded at continental European
hubs have been growing steadily
800
700
Estimate for
full year 2012
600
CEGH
Bcm
PSV
500
PEG
GASPOOL
400
NCG
ZEE
300
TTF
200
100
0
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2005
2006
2007
2008
2009
2010
2011
2012
YTD
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Lessons for the Eurasian Economic
Community
• What factors have allowed the European Commission to transform the EU
gas market despite the objections and resistance of powerful incumbent
players—and in many cases, EU member states themselves?
• Powerful centralized bureaucracy with considerable independence of action
• Deep ideological commitment (at DG Competition and DG Energy in
particular) to free markets and a single market
•
• Can this model be replicated in Eurasia? Not any time soon
• The European Commission was established in the 1950s and only began
liberalizing energy markets in the 1990s
• Strong norms developed during this period prevent even the most powerful
member states from intervening directly in Commission activity
• EU member states have been willing to give up some sovereign powers to EU
institutions, most notably DG Competition
• The conditions today in Eurasia are very different
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Thanks for your attention!
Laurent Ruseckas
Senior Associate, Global Gas
laurent.ruseckas@ihscera.com