EUROPE DEBATES GAS LINE ACCESS

The European Commission faces a host of questions in its flirtation with the notion of third party access to natural gas pipelines. One question, however, should not bother it much: Has open access been successful in the U.S.? The U.S. experience with open access holds little relevance in Europe. Opponents to the idea, mainly pipelines defending their merchant functions, nevertheless have leaped upon it to make their case. They point to significant differences between market structures in

Aug. 12, 1991

3 min read

The U.S. experience with open access holds little relevance in Europe. Opponents to the idea, mainly pipelines defending their merchant functions, nevertheless have leaped upon it to make their case. They point to significant differences between market structures in the U.S. and Europe. They note that U.S. gas regulation is a mess. They're correct on both counts.

So?

MARKETS DIFFER

Yes, European and American markets differ. European gas comes from a relatively few large producers and a relatively few large fields. American supplies come from a multitude of producers and fields of all sizes. The chief regulatory concern for gas in Europe is international trade. In the U.S., it's the constitutionally sensitive subject of interstate commerce.

Moreover, U.S. and European regulatory backgrounds differ, generating different compulsions to consider, if not to adopt, third party pipeline access. The U.S. seeks to free its gas industry from the historic grip of overregulation and market distortion. Europe seeks to unify trade among constituent nations.

And yes, U.S. regulation is a mess. But the mess results more from history than from open access. Indeed, open access is central to a legally complicated remedial effort that began in the mid-1980s and remains very much in progress. It was less than 2 weeks ago that the Federal Energy Regulatory Commission moved to standardize pipeline rate design and to enforce comparability of pipeline sales and transportation services. These are landmark regulatory steps on which success of open access may largely depend. Another vital step-rules on construction and transportation under Natural Gas Policy Act third party carriage provisions-has yet to occur.

The U.S. experience with open pipeline access, then, is incomplete. What can be said about it so far is that a market with surplus deliverable gas has responded. Interstate Natural Gas Association of America says contract carriage represented 79% of all interstate deliveries in 1990. The volume carried under third party contracts increased 12% from a year earlier, while total deliveries increased only 1%.

NOT MUCH INSTRUCTIVE

Except, perhaps, for the market response, there's not much here of instructive use to Europe. Opponents to third party access dodge the issue when they base their arguments on the U.S. experience. They further muddle things when, as some do, they equate U.S. open access with common carriage or argue against third party access as though common carriage were in prospect. The U.S. does not have common carriage for gas. And the European Commission does not seem to have common carriage in mind for Europe, although it has yet to make a formal proposal. The only mention of common carriage in Europe comes from those who oppose mandatory pipeline carriage in any form.

Under the Single European Act of 1985, the European Commission seeks to promote competition and international trade within Europe. Third party pipeline access may serve that objective. Given disparities in gas market development among various European nations, it may not. The commission will have to decide. It must study the issue thoroughly and regulate judiciously if it decides to proceed with a pipeline carriage mandate. What it must not do is condemn third party access as something that it is not or prematurely dismiss it for reasons that do not apply.