IEM: Natural Gas Market
Filip Černoch
cernoch@mail.muni.cz
Key data (2012)
• Production: 173,7 bcm, -33,2% since 2002.
• Total EU imports: 330 bcm.
• Consumption by sectors: 29,5% power generation (second
largest fuel), 27,6% residential, 24,3% industry, 13,3%
commercial and other services.
• Peak demand in 2010.
• Between 2008-2013 large investments in gas-fired power plants,
LNG terminals, storages and pipelines.
• Market opening and liberalisation, increased hub trading and
short-term flexibility, lowering the link between oil and gas
prices.
Natural gas production, 1990-2012
Natural gas supply by sector, 1990-2012
5
6
LNG
• 19 LNG terminals (2013) with total nominal re-gasification
capacity of 186 bcm/y. Klaipedos in Lithuania, Swinoujscie in
Poland and Dunkerque in France to be opened.
• Utilisation of 23,5%.
• Higher prices in Asia and Latin America (Brazil and
Argentina).
• LNG terminals used for re-export to reduce the costs and
losses.
8
Regulation
• The same structure as in the electricity sector.
• Based on the third internal market package, an effort to
increase market effectiveness, liquidity and cross-border trade.
• Strenghtening of the independency and powers of NRAs and
their EU co-operation (ACER).
• Active role of TSOs and their EU wide co-operation.
• Common rules for the gas market – Framework Guidelines,
Network codes.
• Move from P2P to EE systems.
Organization of wholesale market
• Shift from TOP LTCs to hub trading.
Traditional gas market model
• LTC + ToP.
• Pricing formula linked to gas replacement values (oil
indexation).
• Net back replacement value gas pricing.
• Teritorrial restrictions.
• In the EU physical fragmentation of the market.
Traditional gas market model
• Competition is limited.
• Suppliers with significant market power.
• Price arbitrage (convergence) is limited, resulting in different
prices over the EU.
13
• Competition is limited
• Suppliers with significant market power
• Price arbitrage is limited, resulting in different prices over the EU.
IEM
• Competition (TPA, unbundling).
• Common regulatory framework with independent regulatory
bodies.
• LTCs and destination clauses etc. under pressure
(foreclosure potential), shift to hub-trading.
• Interconnectors.
LTCs
• Anti-competitive foreclosure effects –> questioned by the
EU´s antitrust policy.
• Gas Natural, Distrigaz, E.ON Ruhrgas, Repson, Synergen, etc.
• Not forbiden per se, but volumes locked-in under the contract,
duration, cummulative effect and efficiencies are evaluated.
Territorial restrictions
• In 2004 EC confirmed that they restrict competition (GDF
with ENI/ENEL contract).
• 2009 EC fined EDF and E.ON (partitioning the markets,
MEGAL pipeline).
• Intervention to the Gazprom-ENI, Gazprom-OMV,
Gazprom-E.ON or Gazprom-PGNiG agreements.
• Territorial restrictions no longer acceptable on the EU market.
Oil indexation
• Oil products are no longer substitutes for natural gas in
Europe, Gazprom still defends this pricing mechanismus.
• Questioned by EC in antitrust proceeding against Gazprom
(Sept 2011).
Traded volumes at main EU hubs and CAGR,
TWh/year and %
18
Day-agead prices at NWE EU hubs,
euros/MWh
Comparison of selected EU MSs hub and crossborder
import prices, euros/MWh
• 70 000 producing oil fields in the world
• Approx. 25 fields account for ¼ of global production
• 100 fields for ½ production
• 500 fields for 2/3 production.
•G. reduced the ToP minimum to 70% of annual contract
quantity (from 85%), volumes taken in excess sold at hubbased
prices.
•= oil indexation preserved in Gazprom´s contracts, but
base price lowered to adjust to hub prices.
Impact on Gazprom
• G. forced to offer retroactive discounts on existing contracs
(ENI – 7%, GdF, PGNiG, Eon; in 2013 USD 800 – 900 mil.).
• G. accepts fundamental changes in the contracts in terms of
oil indexation, ToP clauses (RWE´s Czech subsidiary in 2013 –
Court of Arbitration of the International Chamber of
commerce).
• = G. is slowly willing to accept spot indexation in its future gas
contracts (5/2014 – ENI – prices aligned with the market).
Impact on Gazprom
• G. reduced the ToP minimum to 70% of annual contract
quantity (from 85%), volumes taken in excess sold at hub-based
prices.
• = oil indexation preserved in Gazprom´s contracts, but base
price lowered to adjust to hub prices.
Retail markets
25
• Still national in scope
• Increasing competition but the market share of the incumbent
supplier remains high in many countries
• Still regulated prices in 15 MS
Sources
• IEA (2014): Energy Policies of IEA Countries – The
European Union.
• Jirušek et al.(2015): Energy Security in Central and Eastern
Europe and the Operations of Russian State-Owned Energy
Enterprises
• ACER (2015): Annual Report on the Results of Monitoring
the Internal electricity and Natural Gas Markets in 2014