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The gas industry hopes to bring Central and Eastern Europe (CEE) on board for a more liquid gas market model

The European gas industry lobby group Eurogas is reaching out to the CEE countries in a bid to map the obstacles hindering the creation of liquid gas markets in a heavily gas-dependent region, Eurogas Deputy Secretary-General Margot Loudon has said.

As a first step towards what the association hopes to develop into an ongoing dialogue, Eurogas will host a regional conference in Prague, the Czech Republic, later this month with participants expected to come from industry, regulators and governments. "Nobody wants to go there and preach. We all recognise that they have their issues to deal with," Loudon said in an interview with Europolitics. "But we want to try to share some of our ideas, because the best way to encourage movement in the direction of the market is to be able to demonstrate its benefits."

One area where this approach could work is the creation of more liquid gas markets through establishing so-called entry-exit systems on the gas grids, Loudon said. The fundamental features of this market model have been outlined in Regulation 715/2009/EC on conditions for access to the natural gas transmission networks, including the provision that natural gas should be able to enter the grids at any entry point and leave the grid at any exit point, at prices independent of distance of transport. The regulation also stipulates that network users must be able to contract entry and exit capacity separately. It describes entry points within a market area as, for example, border points, gas storages or liquefied natural gas (LNG) terminals. Possible exit points are industrial companies, power plants, gas storages, border points or regional gas distribution networks. A full' entry-exit system needs to have a virtual trading point where gas can be traded independently of its location. It offers the users the possibility to bilaterally transfer title of gas and/or swap imbalances between network users.

But a recent analysis by consulting firm DNV KEMA identified various obstacles to creating entry-exit zones in the CEE region, including barriers to free allocation of transmission capacities in Austria, Bulgaria, Germany, Hungary, Poland, Romania and Slovenia. Bulgaria and Slovenia were also on the list of EU countries still lacking a virtual trading point.

Poorly functioning entry-exit systems hamper liquidity on the gas markets, which in turn weakens the market signals for investors, Loudon noted.

"No one is saying that in North-West Europe we have reached at all levels a well-functioning market, but the market is functioning better there than in the CEE countries, where there is certainly less liquidity," Loudon said.

Lack of sufficient physical infrastructure is partly to blame for the delay in setting up entry-entry systems in the CEE region, Peter Kaderjak, head of the Budapest-based Regional Centre for Energy Policy Research (REKK), told Europolitics. For example, the gas system interconnector between Slovakia and Hungary is still missing, though it is scheduled for completion later this month, he said. The interconnector between the Czech and Slovak systems is sufficient, but the Czech-Polish and Slovak-Polish interconnectors have only limited capacity, he added.

Until such bottlenecks are removed, liquidity could be enhanced by applying the new EU rules on allocating available cross-border transmission capacities, Kaderjak noted. He referred to the so-called capacity allocation and congestion management network code, which came into force at the end of 2013, and which calls for allocating cross-border capacities in a transparent way, through auctions. "On most CEE interconnectors, including the Hungary-Austria gas pipeline, still a lot of capacity is allocated in a preferential way instead of at auctions," Kaderjak said. "This will have to change."
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Publication:European Report
Date:Mar 20, 2014

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