Critical points were raised during the CEER/CNMC 37th Madrid Forum presentation and during the follow up discussion with Eurogas on 14 July. Let’s take a look at some of the takeaways from this discussion regarding the role of LNG in Europe.
The EU is importing more LNG because of Russia’s decreasing role in supply routes, meaning the EU experiences an increased use of its regasification capacities. Ensuring the attractiveness of the EU market for LNG will be the core challenge to overcome in continuing to pursue decarbonisation in an atmosphere that is tense for security of supply.
Interlinked with the question of security of supply is that of long-term contracts. The ability to sign these directly impacts the attractiveness of the EU market for LNG. Market players should have the full flexibility to define their own strategy to continue ensuring a competitive and reliable supply. This must be made possible while attempting to strike an appropriate balance, taking into account the risk of high prices in situations of market stress, as experienced during last year’s crisis. For some companies, this points to long term contracts, as they can be instrumental for securing investments and stable supply.
However, any sudden change to the regulatory regime or untoward intervention in wholesale gas markets risks damaging this capability and the EU’s reputation for competitive and dynamic energy markets. It may therefore be premature to call for deep regulatory changes and may rather be beneficial to assess the functioning of the market and explore if/how improvements could be made to the regulatory framework.
Furthermore, Eurogas considers that that the Third Party Access (TPA) exemption regime remains broadly fit for purpose and that there is no need for substantial changes in the current regulatory framework. While the allocation of TPA exemptions needs to be carefully assessed taking into account the regional market context, these exemptions have not led to any negative effects on market functioning. However, efforts should be undertaken to ensure that short-term TPA to terminal is available to new entrants and small shippers.
Eurogas also underlines the need for a more harmonised approach toward transparency. Even though actual terminal users can easily obtain commercial information from LNG terminals, it may be less accessible for prospective users or smaller LNG shippers who want to enter the LNG market. Potential users might have more difficulties in accessing the information they need on terminal terms of use, tariffs, and open capacity slots.
Speaking of these last two points: It should be noted that Member States already today can decide to apply 100% tariff discounts, via the existing Tariff Network Code. Eurogas stresses that this exceptional measure was adopted in a context of crisis and welcomes the sunset date included in this measure a first step in the right direction to limit in time emergency measures. As for other emergency measures, Eurogas underlines the need for caution and to avoid automatic integration in the long-term framework.
All terminals use an open procedure (accessible to all market parties) to allocate primary capacity, but improvements in terms of market reflectiveness, transparency and contractual flexibility could still be achieved. This would allow markets to respond to price signals in the most efficient way possible while preventing that the regasification costs stand in the way of more volumes. Although all LNG regulated terminals are in principle relying on non-discriminatory mechanisms to allocate their primary capacity, some LSOs have in practice allocated all available capacity via long term contracts to a single terminal user which might negatively affect market liquidity and competition if it consists in a capacity hoarding practice.
Read our entire discussion paper here in more detail: [PDF]
