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Home Finance & Regulations Upgrading gas markets in the context of the EU Green Deal

Upgrading gas markets in the context of the EU Green Deal

Well-functioning and liquid gas markets are a prerequisite for ensuring affordable energy for consumers, the competitiveness of industries and security of supply, reports the European Commission.

They also play a role in achieving the environmental ambitions of the European Green Deal, which foresees the decarbonisation of the gas sector via a forward-looking design for a competitive decarbonised gas market.

In this regard, the Commission published two studies: the first one about upgrading and modernisation and the second one about regulatory and administrative requirements.

The first study was conducted by a consortium of consultants led by economic policy consultancy Trinomics, in collaboration with Hungary’s Regional Centre for Energy Policy Research (REKK) and Equidity. It identifies barriers and gaps that may need to be addressed in order to ensure optimal use of existing LNG terminals in the EU.

These findings are especially relevant due to the significant increase of LNG imports to the EU. In fact, over the past two years, EU imports of LNG have doubled and its share within total EU gas imports rose from 12 per cent in 2018 to over 23 per cent in 2019.

Among the main barriers identified in the report, there is the fact that several gas hubs in the EU have not yet reached maturity, which limits trading opportunities for users of LNG terminals and hinders competition, especially if concentration levels are high in the concerned markets. Also, all primary capacity is allocated to a few users via long-term contracts.

For example, Poland’s Świnoujście terminal allocates its primary capacity by approving applications from interested parties and engaging in bilateral agreements. Polish state-controlled oil and gas company, PGNiG contracted the entire terminal regasification capacity in October 2017, through an agreement that will remain in force until 2034.

Therefore, the study suggests implementing primary capacity allocation through auctioning with a low reserve price that would enable more efficient utilisation of terminals and enhance competition in upstream and downstream market segments. It also urges to implement decreased TSO tariffs charged at entry points from LNG terminals and to achieve a uniform 50 per cent decrease in regasification tariffs that would strongly increase LNG flows into EU markets.

The second report commissioned by the Directorate-General for Energy of the European Commission was conducted by a consortium of consultants led by Schönherr attorneys at law, a leading law firm in Central and Eastern Europe. It identifies existing administrative and regulatory requirements to enter and trade on the EU wholesale gas markets.

Since most decarbonised gases are produced and consumed locally and it is likely that on-site production will play an important role in the future, lifting of entry barriers appears to be crucial in order to promote trade with locally produced decarbonised gas. Possible legislative options at EU-level to mitigate them are analysed, including mutual recognition, minimum requirements, an EU pass porting system and the abolishment of licensing requirements.

Even though an EU pass porting system would bring an enormous benefit for many traders within the EU, it would also lead to more bureaucracy in those Member States which currently have no licence or only a registration requirement. Issues with transparency, language or reporting would remain unchanged. The same holds true for the annual supervision fee or import/export fees. However, a system of mutual recognition in combination with a minimum set of requirements and the prohibition of certain requirements would lead to a situation where many major barriers would be eliminated.

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