Integration of European Gas Markets

1
Integration of European Gas Markets

• David Halldearn
• 21 July 2008

2
Context

• EU is in a period of change e.g.
• European Commissions Sector Inquiry into gas and
  electricity markets
• Third package of legislation agreed by Spring
  2009?
• Drivers for change
• single EU energy market is central to core
  principles of security, sustainability,
  competitiveness
• Some progress towards integration e.g. price
  convergence in some regions
• But liberalisation overall has been too slow,
  within and between borders
• Global price increases in gas driving consumer
  price rises
• Security of supply Russia/Ukraine dispute (and
  blackouts)
• Sustainability is a political priority

3
Importance of infrastructure

• The basis for a single market and security of
  supply must be an integrated EU grid
• An integrated grid should be a network of
  networks i.e. national grids joined together
  better than today through
• interconnectors
• reinforcements to facilitate cross border flows
• responsive to the need to connect to diverse
  sources of energy
• Investment and operation must come from private
  companies Governments should not pick winners
• Therefore, creating climate for investment
  necessary to facilitate cross-border trade is
  vital

4
The scale of the task

• Commission Green Paper
• around 1trillion euros will be needed over the
  next 20 years to meet energy demand and replace
  aging infrastructure
• BUT current framework for gas
• promotes liberalisation within member states no
  effective rules for regulated investment across
  borders
• Relies on long term contracts for cross border
  network development with consequent competition
  worries

5
Current problems

• The regulatory gap includes
• Varied powers of national regulators
• No cross-border enforcement
• Uneven implementation of existing Directives
• Often no effective unbundling
• Long term contracts prevalent, including
  grandfathering rights, which inhibit competition
• This absence of a clear and stable regulatory
  framework is a disincentive for the necessary
  investment

6
Financing cross-border infrastructure

• Both contract and regulated investment are
  necessary, within competitive single market
• But both must meet 3 criteria - investors need
• Clear, long term market signals
• Stable regulation
• Fair rate of return

7
An EU regulatory framework

• To facilitate, operate and oversee an integrated
  European grid
• TSOs should
• Have common EU standards for developing and
  operating the European network
• Have in place an EU-level organisation to
  facilitate this (ie. The ENTSO)
• Regulators should
• Approve and ensure compliance with EU standards
• Ensure costs and risks are appropriately
  allocated across borders
• Ensure non-discriminatory access
• Have in place an EU-level organisation to
  facilitate this (ie. regulatory Agency)

8
Way forward

• New EU legislation is essential to deliver the
  required regulatory framework
• Regional markets to be developed further
• Key instrument for implementation
• Essential interim step towards a single European
  market
• Focus for interaction with neighbouring countries
• Careful management of regional and European
  developments needed to ensure convergence

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Summary

• Despite progress, EU energy market remains
  fragmented
• Investment in an integrated European network is
  key
• EU legislation based on a comprehensive vision is
  needed and largely delivered in third package
  proposals, but with some improvement needed
• Regional markets will be the main vehicle for
  implementation and making practical progress