EU internal gas market needs to go further: ACER
The EU has overseen the creation of a largely integrated gas market, with hub trading growing in volume in many regions and long-term gas supply contracts expiring and freeing up more pipeline capacity for trade. But more needs to be done, according to the EU Association for Cooperation of Energy Regulators (ACER) and the Council for European Energy Regulators (CEER).
Addressing a webinar July 6 as they launched their annual wholesale gas market monitoring report, they said that some 70% of European gas was traded at prices that were linked to the Dutch Title Transfer Facility, where thousands of trades for month-ahead were done each day. "This is very high and we need to keep implementing the network codes," a spokesman said. The "enhanced continuation of the gas market on the hub model will still deliver significant benefits for consumers," he said.
He also commented on the record volatility in the market as TTF month-ahead prices last summer, at the height of the pandemic crisis, fell to €4/MWh. A year later, they are at a ten-year high. This is partly to do with the demand to refill storage, partly to do with low LNG imports in the region compared with last year, and partly to do with the price of a ton of carbon in the European Trading Scheme, which has also gone up sharply since late 2020.
"This has put an upward pressure on gas prices, as coal is relatively more expensive, creating demand for gas in the power sector," he said.
Decarbonising gas is the next big task for Europe, and it has the potential to disrupt the transmission system operators' (TSO) business model as biogas, hydrogen and other low or zero carbon gas will be made and consumed within Europe. All gas is to be decarbonised by 2050 and possibly as much as 70% of gas demand will be produced within the EU, while now about that proportion is imported. This could mean hydrogen replacing natural gas in local distribution zones, meaning lower revenues for the TSOs and less cross-border trade.
Who will pay?
This will have a very large impact on customers too, raising the question – as it has outside the EU in the UK – of how to pay for it: through general taxation, or through higher bills for gas consumers. ACER/CEER said that there were still about two years before the question needed to be resolved through EU legislation but appeared to veer towards supporting subsidies, perhaps in the form of a higher carbon price, as the investments will have to be very large if low-carbon gas is to achieve the scale necessary.
That will also be the time-frame for examining the network codes, which include tariffication, to ensure they meet market demands, he said. Some of the questioners at the webinar were dissatisfied with the very large upward price swings in some of the capacity bookings that the TSOs were offering, which ACER/CEER defended as being within their rights. ACER said it would shortly be publishing an update on the allowable tariff ranges.
ACER is also in favour of unbundling the TSOs' accounts so that they cannot cross-subsidise their hydrogen transport business with their gas network tariffs and so squeeze out new entrants in the hydrogen transport business. A spokesman said that how to avoid cross-subsidies was a "very central question," which it was addressing through a White Paper and a preliminary consultation. But this is unlikely to lead to legal unbundling: just the separation of the regulated asset bases and their costs for the two businesses, a spokesman said.
Speaking for the European Commission, Bartek Gurba of the wholesale market unit said tariffication should not allow the subsidised transport of renewable gases, but nevertheless "such cross-subsidisation is taking place." He said that if consumers opted for gas then they should pay exclusively for that, not tax-payers who have already supported renewable energy investments. He agreed that it was a problem that natural gas was still so much cheaper than decarbonised gas and production costs need addressing. "We need to bridge the difference," he said.
This is clear from the figures: low carbon gas accounts for only 4% of the total gas supply. For that figure to reach the 100% that is planned for 2050, much will depend on technology advances; the ability to scale up production; the cost of grid upgrades; and the cost of CO2. It needs to be high in order to drive the investment in low carbon fuels, carbon capture and storage projects or direct air capture.
Gurba said that the EC's aim was to decarbonise the energy chain at lowest possible cost across all market sectors. Renewable energy and energy efficiency will do a lot of the heavy lifting but there are some sectors where molecules are needed, such as transport.
But when asked by NGW whether electrons were necessarily zero carbon –a bone of contention for many in the gas sector, including transport – he said he did not want to discuss the decarbonisation of the electricity sector.