Regulatory uncertainty in the EU regarding gas pipelines both within the bloc and from non-EU countries could lead to a dearth of new projects in the future, with suppliers opting instead to bring in additional gas via Europe's network of underused LNG terminals, UK-based think-tank the Oxford Institute for Energy Studies (OIES) found this week.
In a study published on July 19, the Institute said that the regulatory framework around gas pipeline infrastructure had developed in a piecemeal and fragmented way over the past decade, meaning the rules have not been consistently applied.
Other than the pipelines currently under development - such as Nord Stream 2, its onshore extension EUGAL, the Baltic Pipe from Norway to Poland and the TAP pipeline to bring gas from Azerbaijan to Italy - new projects are likely to be shelved, the OIES said.
Instead, it argues, Europe's future incremental gas import demand will be met by the use of LNG terminals. «The complexity and the lack of clarity associated with the regulatory framework for incremental capacity in the EU - resulting from the way in which regulation has developed as well from its subsequent politicization - suggests that very few major new pipelines will be built in the EU in the future,» the OIES said.
«This is because it will be much easier for those wishing to bring additional gas to Europe to do so via LNG import terminals,» the Institute said. The exceptions, it said, would be those already under construction or foreseen - including TAP, EUGAL and the Baltic Pipe - and possibly also those pipelines needed for connecting the 2nd string of TurkStream with European markets.
Europe is becoming increasingly import dependent given its falling domestic production, particularly in the Netherlands where output from the giant Groningen field is being phased out. Pipeline gas tends to be cheaper than LNG, but as global LNG supply grows Europe is well placed to absorb any surplus production.
Uneven and slow
The OIES argues that the process of developing a legally binding regulatory framework for the creation of incremental capacity and construction of new EU gas pipelines has been uneven and slow. The EU network code on capacity allocation was finally established in March 2017, but did not fully resolve all the problematic issues in respect of the regulatory treatment of incremental capacity, the Institute said.
«The passage of time meant that many new pipelines, which were initiated around the time of the 3rd Energy Package's adoption and entry into force, were developed under a patchwork of exemptions, open season procedures and intergovernmental agreements,» it said.
This, it said, meant that incremental capacity was allocated and contracted under different regulatory regimes which - while not dissimilar - were not identical to the regulatory framework established by the capacity network code.
«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,» it said.