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30.09.2016
Ideally, We Should Have One European Gas Hub
Jean-Arnold Vinois, Adviser on the Energy Union, Jacques Delors Institute
AUTHOR: publics.bg

Mr. Vinois, in your speech during the 14-th annual meeting of GIE in Sofia this June you spoke about the progress of the European Internal Energy Market, both in terms of electricity and gas. What are the main milestones since 2006 and what lies ahead?

The progress made since 2006 is unprecedented and has been made possible thanks to the political will expressed at the highest possible level, i.e. the Heads of State and Government sitting in the European Council. This political will triggered in turn the commitment of all the players to work together in order to implement the rules enshrined in the third internal market package, proposed in July 2007, adopted in July 2009 and entered fully into force since 2011.

Some key features have been determinant for enhancing competition and the integration of the national markets into European markets. After a fierce battle between the Commission and several major Member States, the adoption of the effective unbundling of the electricity and gas transmission systems from the production and supply was secured and boosted the market. Indeed, it allowed the infrastructures to be used by all players in a transparent and non-discriminatory manner, making possible gas to gas competition and major injections of renewable sources in the electricity grid.

The creation of the European Network for Transmission System Operators for electricity (ENTSO-E) and gas (ENTSOG), duly supervised by the Agency of Cooperation of Energy Regulators (ACER) has been essential to develop the technical rules governing the infrastructures, known as network codes now mostly adopted and in the course of implementation. This is the result of a remarkable effort of all the experts involved to create a level playing field for all players in the electricity and gas markets. The independent management of infrastructures has made possible the freedom of choice of suppliers by all customers throughout Europe.

Going from non-existing market dominated by state-owned monopolies considering the consumer as a passive subject (a subscriber without any choice) to a market made of several suppliers competing on prices and services is a major change which can only take place slowly and encouraged by strong independent (from the incumbent and from the political arena) regulators. It should also pave the way for a dynamic demand-side management and facilitate energy efficiency.

The most visible success up to now is the free flow of gas in the European Union and the convergence of much lower gas prices made possible by diversification of sources and fully flexible infrastructures allowing reverse flows.

The electricity market has been hit by many distortions of competition, due to over-subsidization of renewables such as wind and solar PV and by inadequate rules of the market, hence the soon to be proposed new power market design. But in any case, progress is still needed to ensure the full implementation of all the rules.

 

The EC is preparing a Winter legislative package concerning the security of gas supply. Which are the most urgent issues to be addressed and what are the solutions?

This package is already on the table of the co-legislators, the Council (the Member States) and the European Parliament and should be adopted in the coming months. It is reinforcing the rules governing security of gas supply in two respects. First, it requires a more tight regional cooperation to assess the risks and to elaborate preventive and emergency action plans. Secondly, it is imposing more solidarity between neighboring countries in case of emergency, including more transparency in the exchange of information.

In addition, there are new provisions requiring more exchange of information regarding the conclusion of intergovernmental agreements between a Member State and a third country, with an ex-ante scrutiny by the Commission in order to assess the compatibility with the rules of the internal market.

 

Bulgaria and the Central-Eastern European region have always been regarded as one of the most vulnerable in the EU when it comes to supply disruption. What do you think of the announced plans for a regional gas hub situated in Bulgaria?

I am a bit puzzled by the flourishing of gas hubs everywhere in Europe. Ideally we should have one European gas hub like there is one Henry Hub for the whole United States of America which is the most liquid market offering the cheapest gas prices.

We should have a global gas market with a price of reference, like we have in oil. The proliferation of national/regional gas hubs in Europe is the sign of an insufficiently mature market and of the existence of different markets which are still affected by problems such as the lack of diversification of sources of gas, the lack of interconnections, the dominance of a single player, the lack of transparency and possibly the lack of independence of the regulator.

A successful hub needs to offer clear, transparent and non-discriminatory rules, a large variety of sources of gas made possible by various routes, serious competition between the suppliers and so on. Bulgaria should help itself by creating the right conditions to develop a successful hub. At the moment, I regret that Bulgaria is still struggling with the right implementation of the rules of the third gas directive.

 

Can existing infrastructure cope with demand and should large planned pipeline projects, such as South Stream, be re-thought? Is it possible for Europe to have joint negotiations with its biggest gas supplier – Russia, instead of keeping natural gas supplies as a national-level matter?

Demand for gas has been drastically reduced since 2010 and is now stagnating. While it is the cleanest fossil fuel, it remains a fossil fuel which will have to remove its carbon content sooner than later. EU has sufficient import infrastructures to cope with the existing and future demand of gas, especially with the growing share of LNG made possible by the globalization of the gas market and more competitive prices. It is thus important to ensure the full connectivity between the LNG terminals, the storage facilities and the transmission systems to make the whole system as flexible and reactive as possible.

For Bulgaria, which is not a large gas market, it should be sufficient to enhance its connections with all its neighbors to benefit from more sources of gas coming also from different companies. In any case, any major import pipeline coming from Russia should be subject to an agreement between the European Union and the Russian Federation to ensure that such pipeline would benefit the whole EU and would not strengthen the dominance of a single supplier.

 

There seems to be a shortage of enough knowledge and experience in the region regarding electricity and gas liberalization. What do you think of the idea to set up a regional knowledge center in Bulgaria as a possible solution?

There is indeed an urgent need to foster exchange of knowledge and best practices among the Eastern European countries and between the latter and the Western European countries. It should start with strong and active network of academics, offering common platforms for students and for professionals.

Whatever the location of such center, and the geographical location is becoming less and less important given the increase of virtual learning center, it is absolutely necessary to encourage the gathering of academics, regulators, managers active in the energy sector to understand each other, to solve common problems and to undertake common projects.

 

The Energy Union has been made a priority for the EU for the years ahead. How will Brexit and other similar tensions in other member-countries impact the Energy Union?

The Brexit vote has demonstrated that, as anticipated, it can only create a “lose-lose” situation for both UK and EU. UK will lose the easy access to the EU market and EU loses a major political player reducing its world standing and influence. Each of the 28 Member States will lose something. Managing the consequences of this vote will be very complex and will unfortunately absorb a lot of resources on both sides, while there are many other challenges to be addressed.

One of them is the implementation of the Energy Union whose agenda is ambitious and demanding. Many proposals will be made in the coming months requiring the Council and the European Parliament to handle them. The absence of UK, or at least its likely neutrality, in the Council discussions, will lead to different balances of power between the Member States.

For instance, it is well known that UK was a strong advocate of the reduction of greenhouse gas emissions and of nuclear, while it was much more lukewarm on renewables and energy efficiency. Those following UK in the Council will have to find another opinion leader or join the others. But it is still too early to assess the very concrete consequences of the Brexit.

Lyudmila ZLATEVA, Atanas GEORGIEV

This interview was first published in Bulgarian in the August-September 2016 issue of Utilities magazine.

www.utilities.bg 

_________

Jean-Arnold Vinois, a Belgian lawyer, spent most of his professional career in the European Commission. Starting in 1987, he occupied several management posts dealing with internal market, transport, trans-European networks and energy policies, and lastly as acting director for the internal market for electricity and gas in 2011/2012. Since his retirement in 2013, he was appointed Honorary Director and he acted as Special Adviser to the Commissioner in charge of energy until 2014. He is now Adviser on the Energy Union of the Jacques Delors Institute, for which he co-authored with Sami Andoura a report published in January 2015 “From the European Energy Community to the Energy Union: a policy proposal for the short and the long term”. He is also performing specific missions for the European Commission, namely in Ukraine, and for other organizations.


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