EU POLICY PLANS TO SECURE EUROPE’S GAS – BUT NATIONAL ENERGY SOVEREIGNTY CONCERNS ARE BUBBLING UP

By ROBERT STOKESEfforts to safeguard the security of supply of gas to the European Union (EU) and its countries are gathering pace after recent EU regulatory changes. Gas transmission system operators (TSOs) are now developing a new, collaborative system for managing supply crises. Analysts have welcomed aspects of a revised EU regulation No (EU) 2017/1938, which came into force in October 2017, repealing regulation (EU) No. 994/2010. However, these experts believe the evolving crisis management system is less than perfect. Security of supply is also being dogged by questions over how much new infrastructure is really needed to guarantee the EU’s gas keeps flowing, and a new European Commission proposal, the main EU industry association has warned, may actually threaten future gas imports. Through support from the European Network for Transmission System Operators for Gas (ENTSOG), TSOs are now responding to the revised EU regulation. “The most important novelties are the additional emphasis on solidarity, mandatory regional cooperation schemes, fewer exemptions to the obligation to arrange bidirectional flows of gas, and the additional scrutiny on what long-term contracts are central to security of supply,” said Luca Franza, international gas market researcher with the Netherlands-based Clingendael International Energy Programme (CIEP), an independent forum for governments and non-governmental organisations. The revised regulation introduces the principle of solidarity – EU member states agreeing to send gas to neighbours threatened or hit by a supply crisis – for countering disruption on a regional (east, north-west, and south EU) or Union-wide basis. These responses would tackle problems caused by technical or operational factors, and the aim of the system is also to reduce the risk of dependency on external sources, such as Russian gas imported directly or via Ukraine. ENTSOG has (last October – 2017) delivered the first EU-wide gas supply and infrastructure disruption simulation to analyse major supply risks.1 It will do this every four years, or more frequently if needed, using scenarios agreed with the EU Gas Coordination Group (GCG – an advisory panel assisting the European Commission) facilitating co-ordination of security of supply measures. The risk assessment covered 17 hypothetical scenarios. One, where all gas imports via Ukraine are disrupted in January and February, projects that: the EU underground gas storage filling level would fall from around 85% of capacity in November to 5% in June, compared with 12% in the case of no disruption; and, that demand would be curtailed by 72% in Bulgaria, 9% in Romania, and less than 2% in Greece. No neighbouring EU state could assist those nations by supplying gas, as the curtailment would be due to infrastructure limitations. Similarly, flows of Russian gas via Belarus and Nord Stream would increase but hit capacity constraints, giving an overall reduction of 40% in flow of Russian gas to the EU compared with base case. Considerations of capacity and the ability for gas to flow bi-directionally across borders raise issues of what further network developments are needed. The existing version of the Ten-Year Network Development Plan (TYNDP), updated every two years by ENTSOG, stresses that EU gas infrastructure can ensure day-to-day supply-and-demand balance for all assessed demand, and that achieving EU energy and climate targets will generally not require any specific reinforcement of the gas infrastructure of cross-border relevance. However, it states that some EU regions will need additional infrastructure “to allow for sufficient supply diversification and alleviate excessive dependence to the main supply source, therefore improving competition and mitigating risks in the case of crisis situations”. “The upcoming [2018] TYNDP will assess the impact of additional infrastructure projects in improving the ability of the gas system to satisfy the demand of those countries exposed to demand curtailment under severe conditions”, said Celine Heidrecheid, business area manager, ENTSOG. However, the CIEP’s Franza cautioned: “What the European Commission indicates as indispensable to finally attain a truly interconnected internal gas market needs to be assessed against projected gas demand. The risk of overinvestment is real.” A critical review might be needed to avoid building and supporting future stranded gas assets, and assess if, where and how current pipeline capacity in Eastern Europe needs strengthening, he added. Meanwhile, ENTSOG’s newly-established Regional Coordination (ReCo) System for Gas aims to create a broader view of all gas entering EU member states, and to formalise and expand existing international cooperation to deal with supply crises. The revised regulation requires that in a regional or Union-wide gas supply emergency, TSOs must cooperate and share information through this system. ENTSOG then must alert the European Commission and national competent authorities – largely energy, economic, industry, trade and public utilities ministries. To achieve fast and reliable information flow between TSOs that could be affected by possible crisis events, ENTSOG is supporting the establishment and operation of three ReCo Teams of system operators. Already set up, they are: South, to be fully operational by March 2019, with Spain’s Enagás as facilitator; North-West, due to operate by June 2019, with Thyssengas, Germany, as facilitator; and East, due to be ready by November 2019, with Germany’s Open Grid Europe as facilitator. A facilitator is the first TSO that will be contacted if an event looks set to cause a gas supply crisis. These operators will set up communications sessions for ReCo Teams if requested to do so, or if a crisis demands it, with other TSOs being invited to participate as needed. “As envisaged, ReCo Teams will quickly provide a broader view and more detailed information about the reason and impact of a crisis,” explained Hendrik Pollex, business area manager, ENTSOG. “They will channel that information to all relevant stakeholders, and pave the way to possible application of mutually-agreed recommendations of solutions to eliminate or mitigate the consequences of the crisis. Together with ENTSOG they could make recommendations to the Gas Coordination Group.” In addition, as key stakeholders in achieving the revised regulation’s aims, gas companies must now tell competent national authorities about major long-term supply contracts that could be relevant to supply security. Some analysts view the new model as an advance on what was originally proposed by the Commission – see COM (2016) 52 final. The CIEP says its concern that the solidarity principle might oblige a country heavily reliant on gas for energy to cut off its own users to supply protected countries in a neighbouring country – which might be less dependent on gas and unwilling to trigger demand switching – appears to have been superseded by the final version of the regulation. Franza explained: “Solidarity-protected customers are well-defined and it is made explicit that they should be regarded as such only ‘provided that no fuel-switching option is available’. In the final version of the regulation, various regions (‘risk groups’) are identified; the composition of each is based on different disruption scenarios as modelled by ENTSOG. This should generally be regarded as a welcome development.” Looking ahead, in the political arena, governments must now agree joint action to prevent or mitigate the consequences of such disruption; the question is whether such agreements can be reached and tightly adhered to. For example, in May 2016, CIEP and the Centre for Energy at the Paris-based Institut français des relations internationales (Ifri), an independent think-tank, argued in a paper that the then proposed regulation did not sufficiently take into account the heterogeneity of member states’ energy mixes. They argued that energy security should be treated as a multi-fuel issue and that asking member states not to act unilaterally in gas regulation while allowing them much more freedom in other fields of energy policy was not necessarily consistent. “This observation still largely holds true,” Franza said. “Where solidarity is a central principle, there is always risk of free riding. This is also true in this case because national authorities can invoke emergency and trigger solidarity, though the Commission can suspend a request for solidarity if it deems it no longer justified by reality. It is important that in the implementation phase any abuse of solidarity is avoided.” The CIEP sees a more general risk that the solidarity paradigm will be interpreted in a broader political setting, Franz added: “Not only in the context of the energy mix and the decarbonisation objective, but also expanding to other solidarity-requiring policies.” The concern remains that a top-down approach to security of gas supply with mandatory solidarity mechanisms risks creating uncertainty, he concluded: “It notably does so by making it difficult to understand who would be responsible for potential failures of emergency measures.” He illustrated this point through a hypothetical situation where Germany has a shortage of gas while Poland has availability thanks, among other things, to its building an LNG terminal: “Would the Polish operator be forced to ship gas to Germany, or could it invoke a derogation to the principle by pointing to the fact that Germany has contributed to creating distress by refusing to support the construction of an LNG terminal?” Debate over security of EU gas supply is further complicated by controversy over the Commission’s November 2017 legislative proposal for revising the 2009 natural gas directive (see - COM (2017) 660). If enacted as it stands, it would mean key provisions becoming immediately applicable to cross-border gas pipelines with third (non-EU) countries, or rather to parts of those pipelines within EU territory. The proposal is intended to ensure that current, planned and future gas infrastructure projects between EU Member States and third countries cannot distort the energy single market or weaken security of supply. However, in a January (2018) position paper, industry association Eurogas suggested that the proposal will establish obstacles to existing and new pipelines bringing gas to the EU. This, Eurogas said, would create risks to security of supply, investment for project developers and operators, and to wider trade and geopolitical relations. Calling for a halt to allow for a full impact assessment and stakeholder consultation, Eurogas queried the proposal’s compatibility with the UN Convention on the Law of the Sea (UNCLOS) and on member states’ sovereignty over aspects of energy sources and supply under the Treaty of the Functioning of the European Union (TFEU). For its part, the Commission also maintains that revision of the gas directive should help to clarify future energy relationships between the EU and a post-Brexit UK. As the EU security of gas supply crisis management system evolves, there are also questions about whether this will continue to involve a post-Brexit UK as a supplier or receiver of gas, and what impact there might be on its neighbour Ireland. In relation purely to this, ENTSOG told Petroleum Review: “Concerning the ReCo System for Gas, it is certainly the aim to continue with the UK’s participation in this system. The legal framework may change in the future but in a situation of gas supply crisis, the UK, Ireland and the EU will continue to support each other.” REFERENCES 1. ENTSOG Union-Wide Security of Supply Simulation Report, October 2017 ENDS