[GGP] Building New Gas Transportation Infrastructure in the EU – what are the rules of the game?

Although the EU has called over the past decade for gas pipeline promoters to ‘respect EU rules’, these rules had either not been established or were not clear. It was not until March 2017 that a legally binding regulatory framework for the development of incremental (new) pipeline capacity was established, in the form of the Capacity Allocation Mechanisms Network Code (CAM NC). However, the CAM NC did not resolve all the problematic issues fully, as prior to its adoption many new pipelines had been developed under a patchwork of TEP exemptions, Open Season procedures, and Intergovernmental Agreements. In addition, the CAM NC left important regulatory specificities for the TSOs and NRAs to decide, thus enabling them to develop capacity allocation methods which differ across the EU. Thus, the problem of the regulatory treatment of incremental capacity – created under diverse frameworks with varying degrees of consistency – has not been fully resolved at the EU level and uncertainty remains in respect of its future treatment. This problem has been exacerbated by the ongoing politicization of the EU regulation, particularly in respect of all Russian pipelines but especially Nord Stream 2.

 This paper concludes that those pipeline projects initiated prior to the CAM NC’s entry into force should proceed under the rules which were in place at the time of their initiation. Although the EC and the regulatory authorities might be tempted to request some changes in respect of their regulatory treatment – particularly where this differs from what would have been required under the CAM NC – this temptation should be resisted, as further changes would unnecessarily increase (already very significant) uncertainty and complexity. This complexity, together with the lack of clarity associated with the regulatory framework for incremental capacity, suggests that very few major new pipelines will be built in the EU in the future, apart from TAP and EUGAL and the Baltic Pipe, as well as those pipelines needed for connecting the second string of Turkish Stream with European markets. This is because it will be much easier for those wishing to bring additional gas to Europe to do so via LNG import terminals.

This paper was originally published by The Oxford Institute for Energy Studies

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