Inventarisatie van vijf jaar Europees Energie Beleid (en)
Andris Piebalgs
Energy Commissioner
Taking stock of 5 years of European Energy Policy
Figures and graphics available in PDF and WORD PROCESSED
Speech at the Eurogas Annual Policy Conference
Brussels, 1 October 2009
Ladies and Gentlemen,
In the gas industry, time seems to pass at a different pace.
It seems to be moving more slowly. It must be the large scale of gas projects that is at the origin of this perception. The planning and construction of such projects is often better measured in decades than years.
In view of such a long time horizon, the mandate of an EU Energy Commissioner of five years appears short. From my experience, anyone assuming this office therefore needs to act with a long-term vision and with a certain degree of modesty. The fact that five years are not enough to follow the entire investment cycle of large projects has two consequences:
Firstly, when assuming office, an Energy Commissioner has to build on what is there; more than elsewhere, the historical structure of the industry matters.
Secondly, one has to have patience: the effects of new initiatives will usually show only much later.
With this in mind, there is still a lot which can be moved forward with the right mix of patience and persistence. And indeed today, the European gas industry does look very different from the gas industry in 2004 when I took office.
First and foremost, we are today much closer to the vision of a truly integrated internal gas market. Until not so long ago, sceptics would still say that the internal market may be realistic for electricity, but not for gas. The magnitude of the necessary investments, the limited number of supply countries, Member States’ preoccupation with supply security and the ‘integrated nature’ of the gas industry were all quoted as arguments why gas was different and why liberalisation of the gas markets would not work.
Today, most accept that these are no valid arguments, and I have not heard such sceptical voices for quite some time. I think there are a number of good reasons why the perception has changed and why the internal market is now generally accepted as a realistic goal and a worthwhile solution.
Firstly, investment is taking place also in the liberalised market. Unbundled network operators have shown to be willing and able to upgrade and expand the gas networks. The liberalised market has also attracted new players into the gas industry such as electricity companies or pure infrastructure companies. We observe a much more varied market context, for example, with consortia of diverse market players entering previously monopolistic markets.
Admittedly, the economic crisis seems to have slowed this process. The reason is the sharp drop in demand. But the crisis has not fundamentally changed the trend towards a more diversified gas market. Moreover, the Commission has acted to counter the effects of the crisis. In order to encourage investment and market integration, it proposed the Recovery Package reserving more than two billion Euro for gas and electricity interconnection. The Commission has been supporting investment and market integration also by other means, for example, by facilitating the Intergovernmental Agreement for the Nabucco pipeline and by coordinating the Baltic Interconnection Plan.
No doubt, investment will remain a key issue in the liberalised internal gas market. The Commission will have to follow this issue closely because it will not be enough to rely only on market forces.
It is therefore part of the Commission policy that major new infrastructure projects can obtain time-limited exemptions in order to attract private capital. Based on the positive experience with the Recovery Package, the Commission also envisages to propose a new financing instrument for new energy infrastructure. The present instrument for Transeuropean Energy Networks (TEN-E) has a limited annual budget of only about 25 million Euros.
Secondly, with respect to the diversification of supply sources , the past five years have also seen major progress. European companies have reacted to the decline in indigenous gas sources by embarking on new import pipelines and LNG terminals. In particular LNG terminals have opened up the potential for a much more flexible and competitive gas market. With further LNG terminals planned or under construction, such enhanced flexibility in the gas supply is likely to benefit also markets which are still dominated by few gas suppliers. Once more, the Commission will back this trend with an LNG Action Plan and support for new import pipelines.
Thirdly, the gas crisis of January 2009 has served as a wake-up call to remind us that a functioning internal market is not an obstacle to security of supply , but it is the best insurance we can have. It was the Member States least integrated in the internal market which suffered the most from the supply disruption. Due to the lack of infrastructure, it was difficult or even impossible to help such Member States.
The Commission therefore proposed in July a new Regulation for Security of Gas Supply which, in the first place, wants Member States to put in place the necessary infrastructure allowing the internal market to function. The so-called N-1 standard, increased transparency requirements and the obligation to enable reverse flows at interconnections are security supply measures in as much as they are measures to allow market players to manage the crisis for as long as possible. It is only where the supply disruption takes such dimensions that market players and individual governments cannot handle it any longer that the Commission should assume the role of a coordinator.
The first reactions of Member States to the Commission’s proposal show that this idea is widely understood and shared. It accepted that security of supply should be de-politicised. Moreover, security of energy supply is an issue which continues to be managed, in the first place, at national level. But it is also understood that there is much to be gained from closely coordinating emergency plans and preventive action plans at European level. I dare to say that our proposal strikes the right balance between, on the one hand, subsidiarity and reliance on market forces and, on the other, coordination and cooperation at European level.
Finally, today, there are only few who would still claim that the gas industry is integrated ‘by nature’ . There is market entry at different levels of the supply chain and unbundled network operators have proved to be reliable and efficient. Also vis-à-vis third country suppliers, the historic advantage of integrated gas companies is vanishing with the arrival of LNG.
One of the most interesting developments in the new ‘disintegrated’ gas industry is certainly the emergence of liquid and competitive wholesale markets . Such wholesale markets have the potential to make gas trading more transparent and to give the right investment signals. They are also important to ensure that price decreases and efficiency gains are passed on to consumers and are not only to the benefit of suppliers.
That is why I want wholesale markets to function!
If wholesale markets fail, there is in fact a risk that the entire liberalisation is put in question. As a result, governments might call for more price regulation and more central planning of energy production.
It is therefore also in the interest of suppliers and traders to strengthen confidence in the wholesale markets and to create the appropriate legal framework. The financial crisis has demonstrated the general importance of a sound legal and regulatory framework for markets to function properly.
Today, much of the trading of electricity and gas takes place in a legal grey zone. It is covered neither by financial market regulation, nor by energy market legislation. This is in particular true for ‘spot markets’ which are at the centre of the price formation of wholesale markets. There is a regulatory gap in terms of transparency and oversight.
The Commission is therefore currently looking into this issue. Since it is a complex area we asked the Energy Regulators (ERGEG) and the Financial Regulators (CESR) to examine the status quo of the regulation of trading markets and to give advice. On the basis of this advice and further analysis, we will consider the need to propose new legislation in this field.
Ladies and Gentlemen,
I started off by saying that the gas industry seems to evolve slowly and that a mandate of five years as Energy Commission is hardly enough to have a real impact in this sector. And yet, comparing the situation in 2004 and today, the gas industry is no longer the same.
In fact, today, the future of the gas industry looks brighter than ever before. This is partially due to the environmental benefits of using natural gas compared to other fossil fuels. The Emission Trading Scheme (ETS) has made such benefits apparent by putting a price on pollution. Moreover, biogas has the potential to further improve the environmental balance of the gas industry.
The perception of a bright future for the gas industry is however also based on the fact that, today, the gas market is more transparent and more flexible. Thanks to the legislative and regulatory action in this field, the gas market is gaining trust and is thus attracting more private capital.
The implementation of the 3 rd internal market package will further strengthen this development. It will be an essential step to transform a multitude of national markets into a truly European market. A vision is thus becoming reality. Surely, but slowly; and with the right mix of patience and persistence.
Ladies and Gentlemen, the scene is set. It is for you to seize the opportunity.
Thank you for your attention.