"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 sites—a change of scale that 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 access—either regulated or negotiated—to 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 structural obstacles. The first of these—common to all nonnatural gas producing EU countries—is 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, are 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 infrastructure—such as at Fos on the Mediterranean and at Verdon between France and Spain—will 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 achieved only 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 transactions—a volume that is only expected to double to only 30 bcm/year by 2010. Meanwhile, volumes of LNG exceeding long-term contracts and available for spot deals amount only 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. 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 Nacional 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.