EU Energy Policy Blog

The European Union is engaged in a process of market inte- gration over a long period. Cross-border energy infrastructure investments should play a key role in reaching this objective. However, cross-border investment projects having a European interest are currently undertaken only country by country with an insufficient cooperation between actors involved in such a project. Beside the lack of cooperation, the asymmetries of cost allocation and of benefit distribution of cross-border infrastructure plus the presence of economic externalities have lead to a suboptimal situation at the EU level. Continue reading »

The discussion on a target model for European gas network access has been going on for a while now,officially starting with the conclusion of the 18th Madrid Forum in 2010 which invited ““the Commission and the regulators to explore, in close cooperation with system operators and other stakeholders, the interaction and interdependence of all relevant areas for network codes and to initiate a process establishing a gas market target model””.
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The fast development of shale gas has revolutionized the American natural gas market; shale gas production now represents more than 20% of the domestic consumption. Meanwhile, natural gas prices dropped: the NYMEX price now stagnates around $4/MMBtu from $12 in June 2008. How is it possible to ensure a fast-increasing and profitable production at such prices? Part of the answer is that producers were actually paid a much higher price, thanks to hedging strategies on commodity markets. But now, pessimistic market expectations make it harder and harder to benefit from this mechanism, putting an important share of this capital-intensive industry’s cash resources at risk.
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Obviously, no country wants to depend on ‘insecure’ foreign supplies of an important economic input such as natural gas. However, security of supply has a cost. Therefore, we question whether there is a rational for EU-wide, unique supply security standards as have been implemented recently via the Commission’s new regulation concerning measures to safeguards security of gas supply.

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Sometimes events happen so fast that even the experts are baffled by the speed of developments. Barely a decade ago, when the economy was booming, many were concerned about the rapidly dwindling US domestic natural gas supplies. There was talk of the need to build multiple liquefied natural gas (LNG) terminals to import the stuff from foreign sources, as far away as Qatar. For a while, the price of natural gas went as high as $12 per million BTUs. That picture has dramatically changed thanks to discoveries of non-conventional gas supplies – more plentiful than previously thought. And with stunning advancements in hydraulic fracturing technology, US Energy Information Administration has doubled its estimate of the country’s technically recoverable reserves of shale gas from 353,000 to 827,000 Billion cubic feet. How fast things change even in the slow moving energy business.
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Given the potential for gas to yield environmental benefits at a lower cost than alternatives like renewables and CCS, allowing a gas glut to persist represents a policymaking failure. Because it requires especially costly infrastructure in the form of pipelines or LNG in order to reach consumers, the unique challenge of natural gas has always been to develop demand in concert with supply. Historically, this has never been accomplished at scale without significant government involvement. Today’s situation is no different. Governments worldwide need to support growth in global gas demand through actions in several main areas.
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The American natural gas sector has undergone a ‘quiet revolution’ in recent years spearheaded by new innovative drilling techniques. These have given greater access to unconventional gas supplies, particularly so-called shale gas. With these new supplies the American gas market has soared; shale gas is now responsible for about 20 per cent of total US gas production while back in 2000 it was still in single-digits.

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The logic behind the question in the title is straightforward. Iran is a country with very large reserves of natural gas, a lot of it relatively low-cost. With the right investment it could become an exporter of global significance in about a decade. Europe is one of the largest gas markets in the world. Its combination of liberalised electricity markets and ambitious environmental policies favour gas in power generation, at least in the mid-term. Russia’s position in the European gas market raises concerns of market power and politicisation. The EU supports new gas pipeline projects from Central Asia and the Middle East through Turkey and the availability of Iranian gas could be essential to the success of this diversification strategy. Russia, on the other hand, should want to prevent or delay the emergence of Iran as a large gas exporter.
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A recurrent theme in the EU security of supply debate is the need to diversify natural gas imports, and to reduce the EU’s dependence on a few large suppliers. Continue reading »

In July 2009 the European commission published a proposal for a Regulation on the security of gas supply, due to replace the Directive 2004/67 on the same topic. The proposal has been discussed at the Council under the Swedish Presidency and the negotiation continues under the Spanish Presidency; a political agreement is expected in May 2010.

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