PARIS, July 11 -- "The coming year will be a crucial year," for the European Union's natural gas market, according to Jean Syrota, president of that country's Commission de Régulation de l'Energie (CRE). Syrota made the statement earlier this month during a press conference while presenting CRE's July 2002-July 2003 progress report.
Effective July 1, 2004, the EU's natural gas market was fully opened to 530,000 industrial sites compared to the current 650 sitesa change of scale which will "strongly strain the market mechanisms put in place or being elaborated," Syrota said. The "mass market" opening to all consumers is set for 2007, he said.
Some of the key items on the CRE's agenda for the year include grid tariffs, transparency of third party access to the grid, third party accesseither regulated or negotiatedto gas storage facilities (essential for a highly seasonal gas market), access to LNG terminals at economically competitive tariffs (even for small quantities), and the unbundling of integrated operations.
Obstacles still exist
Syrota noted, however, that open competition still has two structural obstacles. The first of thesecommon to all non-natural gas producing EU countriesis the formation of gas cartels by a small number of operators, mainly outside the EU. Such a formation, Syrota said, induces practices such as long-term contracts, destination clauses, and identical delivery prices for all destination countries. As a result, the open part of France's gas market has still remained organized on the basis of 1-3-year bilateral contracts.
The second obstacle, which mainly concerns France, is the limited gas entry points in the southern part of the country. While there are sufficient interconnections and transit infrastructures present, only the construction of new infrastructureat Fos on the Mediterranean and at Verdon between France and Spainwill make it possible to set up a southern "hub" and provide customers with a real choice of suppliers.
In Syrota's view, these physical obstacles to competition are compounded by the fact that however large the official opening of the EU's gas market, few countries have really set up what should be the simple basis for competition, namely independent grid managers to guarantee third party access and a specialized regulator with all the power required to oversee the grids and the market.
Market hubs needed
"There is great discrepancy between theoretical and actual opening to competition among gas suppliers," Syrota noted, adding, "The (EU) has set its sights on establishing a single energy market; but so far, it has only achieved an unequal opening to competition within partitioned national markets."
In addition, only 15 billion cu m (bcm)/year of the EU's 450 bcm/year in gas consumption is available for spot transactionsa volume that is only expected to double to 30 bcm/year by 2010. Meanwhile, volumes of LNG exceeding long-term contracts and available for spot deals only amount to 5 bcm/year and are likely to increase to 15 bcm/year by 2010.
Under these circumstances, Syrota reckons that in the midterm, a reasonable development would be to favor the establishment of regional market hubs on the lines of the UK's gas market, which is reorganized around the National Balancing Point (NBP). The most likely hub in France would be in the North, where all of the gas entry points are located, rather than in the South, where the lack of entry points has so far prevented any opening to competition.
A joint declaration brought about by Spain's Comision National de Energie, France's CRE, and Portugal's Entidade Reguladora dos Services Energéticos is pushing for the development of gas interconnections between the Iberian Peninsula and France, thus illustrating that Syrota is not alone in his thinking that southern hubs would serve both competition and security of supply.
In their declaration the three regulators advocate capacity increases of the Lacq-Calahorra pipeline, the building of a Bilbao-Lussagnet pipeline along the Atlantic coast, and the building of a new pipeline along the Mediterranean coast that "would contribute to the development of competition in the internal gas market by increasing the number of potential suppliers both in the Iberian Peninsula and in SouthWest France.
"(The pipelines) would also allow a larger number of consumers to benefit from existing and future gas storages," Syrota said, adding, "These interconnections would widen gas markets for the new import facilities, the Medgas line between Algeria and Spain, and the new LNG terminals in Spain, Portugal, and in the South of France."
New LNG terminals are being planned in Southern France, the most advanced of which being Fos 2, which involves Gaz de France, and Fos 3, involving ExxonMobil Corp. Total SA also has been mulling over the construction of an LNG terminal at Verdon on the Atlantic coast.
Despite the currently narrow opening so far of France's gas market, Syrota does note that it has had a positive effect on prices since 2000 for the eligible clients in the North, which have access to many gas entry points and several existing hubs in Belgium, Holland, Germany, and Britain.
He also notes that besides GdF and Total, there are new active operators on France's open market such as Belgium's Distrigaz, BP PLC and Norsk Hydro ASA, even though their share is still less than 5%.
Other operators like Germany's Ruhrgas AG and Statoil ASA have opened commercial bases in France and could soon also become active players.