TOWARDS COMPLETION OF THE INTERNAL MARKET FOR NATURAL GAS ( COMMUNICATION FROM THE COMMISSION )
Date: 1989-09-06
Institutions: European Commission
Subjects: energy supply, gas pipeline, natural gas, transit, transport network

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

C0MC89) 334 final  - SYN 206 

Brussels, 6 September  1989 

TOWARDS  COMPLETION  OF  THE INTERNAL  MARKET 

FOR NATURAL  GAS 

(Communication  from  the  Commission) 

Proposal  for a 

COUNCIL  DIRECTIVE 

on the transit  of natural  gas through  the major  systems 

(presented  by the  Commission) 

G^îlk 

TOWARDS  COMPLETION  OF  THE 

INTERNAL  MARKET  FOR  NATURAL  GAS 

CONTENTS 

SUMMARY AND  CONCLUSIONS 

INTRODUCTION 

PART  I. 

IMPORTANT  ASPECTS  OF  THE  NATURAL  GAS  SECTOR 

A. 

B. 

SPECIFIC 

CHARACTERISTICS 

COMMUNITY  GAS TRADE 

PART  11. 

TOWARDS  A  MORE OPEN  GAS  MARKET 

A. 

B. 

THE  NEED  FOR  MORE COMPETITION 

IN  THE  GAS  SECTOR 

'GAS  TO  GAS'  COMPETITION 

PART 

I I I. 

A  STEP-BY-STEP  APPROACH TO  THE  PROBLEM: 
PROPOSALS  FOR  THE  FUTURE 

A. 
B. 
C. 

RIGHT  OF  TRANSIT 
THIRD-PARTY  ACCESS 
COMMUNITY  DIMENSION  OF  TRANSMISSION 

INVESTMENTS 

ANNEX: 

PROPOSAL  FOR A DIRECTIVE  ON THE  TRANSIT 
OF  NATURAL  GAS  THROUGH THE  MAJOR  SYSTEMS 

-  2  -

SUMMARY  AND  CONCLUSIONS 

the  general 

in 
market, 
Internal  market 

the  Commission  considers 
gas. 
for  natural 

framework  of 

the  complet  Ion  of  an 

Internal 

ft  necessary 

to  achieve 

energy 
a  more  open 

the  present 

situation 
Is  no  competition 

In 
there 
consumers 
In  the  Community,  there 
gas  companies  to  operate  efficiently 

where 
between  gas  suppliers 

for  practical 

and 

technical 
sales 

for 

Is  a  lack  of  competitive 

and  minimise 

costs. 

reasons 
end-
pressure  on 

to 

In  order 
'gas 
proposes 

to 

Improve 

to  gas"  competition 

the  efficiency 

of 
to  the  benefit 

the  gas  supply  system  and  create 
the  Commission 

of  the  consumer, 

the  following 

"step-by-step' 

approach: 

a) 

b) 

c) 

The  setting 
of 
applIcatlon 
Community  In  the  high-pressure 

up  (Directive 
transit 

Article 
rights 

grid  of 

gas 
the  EC; 

/OOa  EEC)  of  modal It  les 
between 

companies 

for 
of 

the 
the 

an  organisation 
for 

of 
the  high-pressure 

up  of 
responsible 

The  setting 
entitles 
This  organisation  will  be  required, 
to  help  with 
necessary, 
difficulty 

the  modal ft  les 

to  seek  reconcf11  at  Ion  between 
and  to  produce  an  annual 

for  claims 

représentât 

gas  pipeline 

of 
the 
systems. 
upon  request  by  the  Commission, 
and,  when 
In  case  of 

the  parties 

to  transit 

report  on  Its 

activities; 

rights 

Ives 

up,  by 

The  setting 
establfsh/ng 
Member  States; 
In  order 
system  needs 
conditions, 
guarantee 
consumer  and  the  security 

to 
the  preservation 

to  discuss 

In  order 

two  consultative 

the  Commission,  of  a  consultation 
committees 
the  sectoriel 

- 

the  second  with 

first 

the 
Interests 
to  a  European 

if 
to  be  organised 

third-party 

access 

and,  when  necessary, 
implementation 

an 

the  quality 

of 

service 

ensure 
of 
supply. 

of 

with 
Involved 

process  by 
the 
-
transport 
under  what 
will 
which 
the 

to 

for 
access 

the  Community  as  a  whole  of 
to 

The  net  benefit 
third-party 
some  625  million 
also 
behaviour  of  gas  companies  whose  wide  beneficial 
run  on  a 11  gas  consumers  cannot  be 

the  gas  transmission 

ECU  per  annum. 

advantages 

quantified. 

Important 

resulting 

Indirect 

introducing 

a  system  of 
at 
grid  has  been  evaluated 
there 
are 
competitive 
longer 

Increased 
Impact 

from 

that 

the 

In 

It  should  be  stressed 

d) 

In 
Improvements 
future  Community 
This 
on  energy 

Investments. 

Is  the  subject  of  a  separate  Communication 

the 
investments 

informative 
in 

procedure 
the  natural 

and  consultation 
transport 
gas 

on 
sector. 
from  the  Commission 

- 3 -

Introduction 

In 

the  need  to  achieve  a  more  open  internal  market 

The  European  Commission has  expressed 
May  1988(1) 
gas.  Specif  leally, 
September  1986  on  new  Community  energy  policy 
1995(2)  which 
barriers 
Improving  security 
economic competIt  Iveness". 

Its  Working  Document of 
for 
theme appeared  In  the  Council  Resolution  of 
for 
from 
to 
improving 

energy  market  with  a  view 

objectives 
free 

to 
Internal 

to  trade,  of 

integration, 

reducing 

referred 

'greater 

supply, 

costs 

this 

and 

the 

of 

2.  The  Commission's  Working  Document  presented 

Inventory  of  possible  barriers 
priority 
The  priorities 

areas  for  action 

Included  the 

following: 

In  gas  and 
to  remove  the  most  significant 

trade 

to 

a  comprehensive 
Identified 
barriers. 

a)  greater  price 

transparency  for  non-tariff 

sales,  especially 

In 

the  United  Kingdom  and  the  Federal  Republic  of  Germany; 

b)  harmonisation  of  taxation  on  energy; 

c) 

the  posslblIfty 
for  a  reasonable  carriage  charge. 

third-party 

of 

access  to 

the  grid 

In 

return 

the 

listed 

report 

In  the 

requested 

inventory  and  will 

to  examine  each  of 

the  Commission  to  submit 
to  Community gas  trade  and  on  the 

The  Commission  has  undertaken 
potential 
obstacles 
to  the  Council 
as  these  examinations  are  completed.  As  a  matter  of  priority, 
the 
Council 
the 
obstacles 
access 
concept  during 
the  course  of  1989.  This  Communication  addresses 
these  questions  with 
the  gas 
industry, 
the 
the  consumers  and  the  need  for  more 
competition.  As  part  of 
its  assessment,  the  Commission has  taken 
Into  consideration 
out,  at 
its 
the  various 
request,  by  an 
opinions  which  were  brought  to  Its  attention  by  the  Member  States' 
gas  experts, 
the  oil  and  gas  Industry,  consumer  associations  and 
other 
third-party 
of 
the  United  States. 

interested  parties.  The  Commission  also 

the  results  of  studies  carried 

the  United  Kingdom and 

Independent  consultant 

its 
third-party 

access  which  exists 

the  structure 

Interests  of 

as  well  as 

views  on 

reference 

looked  at  the  system 

of 

to 

In 

In 

4. 

to 

in  order 
create 
the  Commission  proposes  the  following  "step-by-step"  approach: 

the  gas  supply  system  and 
the  consumer, 

"gas  to  gas'  competition 

improve  the  efficiency 

to  the  benefit  of 

of 

a">  the  setting  up  of  a  Council  Directive 

(Legal  basis:  Article  100a 

EEC)  on  the  modalities  of  setting  up  an  obiIgat/on 
transit 
pressure  grid  of  the  EC; 

between  gas  companies  of 

the  Community  for 

for  natural  gas 
the  high-

(1) 
(2) 

C0M(88) 238 final. The Internal  Energy Market. 
O.J.  n9 C 241 of 25.09.86. 

- 4 -

consul 
under  which 

tat  Ion  procedure 

It  would 

access 

to 
consumers) 

third 

parties 

(notably 

to 

transport 

systems. 

b) 

a  detailed 
conditions 
general 
Industrial 

concerned 

to  define 

for  all 
be  possible 
public 

to  give 
distributers 

the 
expanded 
and/or 

Additionally, 
Council  Regulation 
Investment 
sector, 
projects 

projects 
that 
as  will 

so 

in  a  separate 
envisages 

Communication 
communication 

to 

of  Community 

the 
the  Commission  may  make  such  observât 
enhance 

the  Community 

dimension. 

interest 

(C0M(89)  335), 

a 

the  Commission  of 
in 

natural 
ions  on 

draft 
all 
gas 
these 

PART  I 

IMPORTANT  ASPECTS OF  THE  NATURAL  GAS  SECTOR 

A.  Specific 

characteristics 

a)  Rôle  of  natural 

gas 

in 

the 

total 

energy 

balance 

5. 

the 

In 
natural 
diversification 
development 

framework 
gas 

contributed 

of 

the  Community 
significantly 

energy 
to 

of  energy  supplies 
the  Community's 

of 

own  energy 

away  from  oil 

policy 
the 
and 
resources. 

objective 
the 
to 

objectives, 
of 
further 

Community  energy  balance 

to  achieve 

gas  more 

than  doubled 

Its 
a  present 

share 
share 

in 
of 

total 

natural 

across  Member  States: 

Between  1975  and  1988,  natural 
the 
18%. 
The  current 
widely 
a  number  of  countries 
Germany,  France, 
Portugal, 
gas 
For 
rôle 
Community. 

Industries 
the 

In  a  diversified 

or  considerably 

future, 
gas 

Denmark, 

Belgium, 

Ireland, 

for 

gas  share  of  gross 

energy 

consumption 

there  are  some  "mature" 

gas  markets 

(the  United  Kingdom, 
and 
Luxembourg) 

the  Netherlands, 
in  some  other 

Spain) 

there 
expand  existing 

ones. 

are  plans 

to  develop 

the  Commission  envisages 

a  continuing 

and 

mix  of  energy 

supplies 

varies 
In 
Italy, 
(Greece, 
new 

Important 
the 
for 

°)  Organisational 

structure 

of 

the  gas 

industry 

6. 

It 

tends 

activities 

the  gas 

takes  place) 

in  which 
quite  widely 
emerge 

The  way 
varies 
features 
(where 
transmission 
tion 
company 
Gas  production 
industry. 
State  monopoly  or  near-monopoly 
very  considerable 
major 
example. 

and  distribution. 
Involve 

a  wider 
the 

gas-consuming 

than  do 

interests 

across  Member  States, 

industry 

Is  structured 
although 

in  a  number  of  cases. 

Typically, 
to  be  organisâtionalIy 

Frequently, 
range  of 
'downstream' 

exploration 

Internat 

ional 
operations 
is  not, 

In  most  Member  States 

State  Involvement 
countries 

such 

activity. 
In 

Nevertheless, 
the  upstream  gas 
and 
as  France 

and 
certain 
gas 

separate 
and 
oil 
of 

organised 
common 
production 
from 
produc 
and  gas 
the  gas 
a 
Is 
In 
for 

therefore, 
there 
industry 
Italy, 

-  s  -

carried 

Is  also 

Importing 

the  State 

organisation 

and  transmission, 

in  contrast 
national 

Spain  and  the  Republic  of 

(Belgium  and  the  Netherlands) 

to  production, 
in 

out  by  a  single 
of  Community  Member  States, 
100%  owned  by 
Ireland, 

Bulk  gas 
an  activity 
vast  majority 
that  organisation 
Italy, 
other  cases 
with  considerable 
an 
now  provides 
that 
the  emergence  of  competI  tors) 
owned  monopoly  seller  which 
transporter 
major 
to  cooperate 
Is  very  much  dominant 
of  gas  sold 

Is 
the 
in  a  good  many  cases, 
(In  Denmark, 
In 
is  mixed  ownership 
The  United  Kingdom 
In 
privately-
the  dominant  bulk 
several 
tend 
than  compete  for  bulk  purchases  and  one  of  them 
as  over  70% 

in  terms  of  size  and  importance, 
Its  hands. 

there 
Involvement  and  control. 

to  remain 
In  West  Germany  are 

In  West  Germany  passes  through 

for  example)  while 

companies,  but 

State 
Interest 

Ing  exception 

transmission 

the  general 

In  practice 

gas.  Only 

of  natural 

importing 

(pending 

pattern 

rather 

likely 

there 

there 

is  a 

they 

to 

Is 

though 

activities 

integrated 

vert  leally 

In  France  and 

the  Republic  of 

the  United  Kingdom  are  gas 

In  other  cases,  a  single  national 
or 

Only 
distribution 
company, 
direction. 
is  complemented  by  a  number  of  regional 
companies,  many  of  which  are  municipally 
situation 
In 
of 
Industry 
Importing  utilities 
ing 
there 
ship 

transmission 
and  the  distributors. 

Is  somewhat  exceptional, 

transmission 
within 

is  also  moving 
transmission 

and 
single 
In 
this 
company 
distribution 
owned.  The  West  German 
a 
third 
the  main 
Interest 
owner 

Is 
companies  between 
Is  also 
of  private 

Is  an  unusually  high  proportion 

In  the  distribution 

local  gas 

Belgium 

regional 

in  that 

Ireland 

sector. 

there 

that 

tier 

a 

Where 
transmission 
usual  arrangement 
gas  direct 
then  on-selI 

to 

and  distribution 

activities 

is 

for 

the  national 

transmission 

are  separate, 

the 
company  to  sell 
who 

larger  consumers  as  well  as  to  the  distributors, 

to  households  and  other  smaller  gas  users. 

the  West  German  gas 

some  separate 

the  West  German  market  and  Its  central 
gas  grid 

In  Western  Europe.  The  ownership 
and  sub-holdings 

of 

the  structure 

complex  and  may  merit 

the  size  of 
Integrated 

As  mentioned  above, 
is  particularly 
given 
to  the 
Is  a  complIcated  web  of  cross-holdings 
Involves 
concerns  as  well  as  some  of 
or 
public  sector 
West  German  gas  transmission 
In  most  other  Member  States. 

their  West  German  subsidiaries. 
Interest, 

Although 
the  degree  of  private 
companies 

a  number  of  major  West  German 

the  major 

Industrial 

international 

there 

oil 
Is  some 

ownership 

Is  significantly 

industry 
discussion, 
Importance 
pattern 
which 
and  mining 
companies 
Indirect 
In  the  main 
than 
higher 

- 6 -

B.  Community  gas  trade 

a)  The  European gas  transmission  network 

10.  The 

exists 

which 

cooperation 

European  gas  grid  which  currently 

between  most  European  gas 
in  the  existence  of  a  rather 
covers  France, 
the  Netherlands,  Luxembourg,  West  Germany,  Denmark and 
together  with  Austria  and  Switzerland.  Some Member  States 
(the  United 
The  number  of  gas 
limited.  Their  ownership 
the  hands  of  a  small  number  of  major  gas 
oil  companies 
international 

transmission  companies  Is  reflected 
wel/-Integrated 
Belgium, 
Italy, 
are  not  yet 
Kingdom,  Ireland,  Spain,  Greece  and  Portugal). 
trunklInes 
Is  concentrated 
utilities 
which  sometimes operate 

In  the  framework of  Joint  ventures. 

in  Western  Europe  fs  relatively 

to  the  European  gas  grid 

lesser  extent) 

interconnected 

and  (to  a 

In 

b)  The  Importance  of  Community  gas  trade 

11.  Natural  gas  flows 

In 

the 

Interconnected  European  grid  are  quite 

International 

third  countries.  Based  on  the 

transactions  between  Member  States  and 

In  1988,  half  of  the  gas  consumed  in  the  Community  was 

Important. 
the  result  of 
forecasts  of  Member 
with 
Inter 
States, 
Importance  of 
third 
national  gas  transactions  between  Member States  and  with 
consumption 
countries  will 
(±  50%).  Recent  forecasts  made by  the 
IEA  and  other  professional 
Institutions 

estimate  an  even  higher  degree. 

latest 
In  2000  the 

Is  estimated 

remain  high 

relation 

total 

that 

to 

In 

It 

12.  The  transit 

of  gas  within 
represented, 

Member  States, 
±  22% of  total  gas  Imports  (Intra  +  extra  EC). 
tance  of  gas  transit  within 
fore 
casts,  will  grow  to  around  33% of  total  gas  imports  (intra  +  extra 
EC)  as  set  out  below: 

the  Community,  crossing  one  or  more 
figure 
table), 
aval 
In  2000,  the  Impor 

the  EC,  based  on  Member  States' 

in  1987  (latest 

- 7 -

Contracted  Gas  Exports/Imports 

in  Transit 

through 

a  Member  State 

(year  2000, 

In  mtoe) 

Exporter 

Importer 

In  transit 

through 

Volume 

Netherlands 
Netherlands 

Netherlands 
Norway 
Norway 
Norway 

France 
Italy 

Luxembourg"' 
Netherlands 
France 
Spain 

USSR 

France 

Belgium 
West Germany/ 
Switzerland 
Belgium 
West Germany 
Belgium 
Belgium/ 
France 
West Germany 

3.8 

3.3 
0.4 
3.8 
6.3 

0.8 
9.1 

27.5* 

PART  II 

TOWARDS  A  MORE  OPEN GAS  MARKET 

A. 

The  need  for  more  competition 

In  the  gas  sector 

13.  Natural 

gas  supply  within 

the  Community 

Is  characterised 

above,  paragraphs  7  and  8)  by  a  series  of  national, 
local  monopolles.  Although  gas  competes  with  other 
Its  end-markets 
-  such  as  heavy 
raising 
hold  sector 
competition 
anywhere 
fuels 
pressure 
costs. 

and  electricity 
- 
Is 
there 
between  gas  suppliers 
the  Community. 

fuel 
for  space  heating 
and 

In  cases  where  competition 
Is  a  lack  of 

is  not  particularly 

on  gas  suppliers 

for  practical 

to  operate 

or  gasoil 

efficiently 

technical 

Intense, 

sales 

there 

for 

for 

oil 

In 

to 

fuels 
Industrial 
in 

regional 

(see 
or 
In  most  of 
steam 
the  house 
reasons  no 
end-consumers 
from  other 
competitive 
and  minimise 

the 

framework  of 

in 
the  basic  question 
supply  system  and  create 
the  consumer. 

the  achievement  of  a  single  market 
Is  how  to 

the  efficiency 

Improve 

"gas  to  gas'  competition 

for  energy, 
the  gas 
of 
of 
to  the  benefit 

Indirect  Imports, 
(Luxembourg). 

on-sold  by  Oistrlgaz  (Belgium)  to  Soteg 

This  figure  of  27.5 mtoe  represents  28.7% of  total  gas  Imports 
ai ready  contracted  for  2000  (Intra  +  extra  EC).  It  does  not 
take  into  account  the  transit  of  additional  gas  Imports  which 
wi ! I  be  necessary  tc  cover  the  expected  total  demand  of 
230 mtoe  In 20C0.  If this  is taken  into account,  the  percentage 
would  r ise to ± 33%. 

- 8 -

B. 

"Gas  to  gas' 

competition 

14.  Besides 

high-pressure 
achieve 
Community  level, 
consumers)  access 

Introducing 
grid, 
to  gas"  competition 
of  a  system  of 

"gas 

In  effect 
the  Commission  considered 

transit 

third-party 

through 

the  possiblIIty 
introduction 
large 

the 
(e.g. 

of 

the 
to 
,  at 
Industrial 

between  operators 

to  the  European  transmission 

grid. 

that  context, 

In 
tages  and  drawbacks  of 
for 

the  gas 

the  Commission  examined  what  would  be  the  advan 
the  consumers, 

such  a  system  for 

Introducing 

industry  and  for 

the  Community  as  a  whole. 

in  particular, 

the  Commission  looked  at 

the  following 

Issues: 

a)  Would 

third-party 

access 

lead 

to 

lower  prices 

providing 

incentives 

for  producers 

to  compete  one  with 

by 
another? 

b)  Would 

lower  prices 

and  greater 

competition 

have  an 

and  on  security 

impact  on 
of 

the  development 
supply? 

of  domestic 

resources 

c)  Would  the  potential 

benefits 

outweigh 

the  potential 

drawbacks? 

15.  The  principal 

potential 

system  of  third-party 

Advantages 

advantages  and  drawbacks  of 
Identified 

access  were 

as 

follows: 

Introducing 

a 

a) 

b) 

the  possiblIIty 
marketing 
aggressively 

opportunities 

for  market 

erosion 

the 
monopoly  profits 
customers; 

(through 

of 

lower  gas  purchase 

prices, 

direct 
to  compete  more 

if 

lead  gas  producers 
share; 

third-party 

access 

on  certain 

high-margin  gas  sales 

arrangements) 
to 

of 
Industrial 

c) 

some  Increased  competitive 
overheads  and  operate  more 

pressure  on  gas  utilities 

to 

reduce 

efficiently; 

d)  wider  gas  purchase  options 

(and 

therefore, 

possibly, 

lower 

prices) 

for  new  gas-fired 

power 

stations; 

e) 

Increased  options 
the  Community, 
link  and  further 

Integration. 

for  UK  gas  producers 

to  sell 

into 

Increasing 

the 

likelihood 

of  a 

the  rest  of 
cross-Channel 

Drawbacks 

a) 

the  possiblIIty 
competition 
to  a  "bidding  up'  of  gas  purchase 

between  new  and  existing 

In  a  tighter 

gas  market 

prices; 

than  exists 

today, 
bulk  gas  buyers  could 

that 
lead 

b)  possible 

Increases 

compensate  gas  utilities 
profits; 

In  selling 
for 

prices 
any 

to  small  consumers, 
Industrial 

to 
market 

loss  of 

- 9 -

c) 

increased  market  uncertainty 
necessary 
long-term 
within  and  outside 

Investments 

which  might  put  at 

risk 

In  gas  supply  capacity, 

the 
both 

the  Community,  and  the  security 

of 

supply; 

d)  adverse  consequences  of  market  uncertainty 

for 

the  development 

of 

'new'  or 

Infant  gas 

Industries. 

16.  The  'order 

of  magnitude"  of 
access  has  been  evaluated  as 

financial 

the 
follows: 

Impact  of 

third-party 

16.1 

Border  gas  prices 

Is  worthwhlle 

that 
the 
atomistic 
is 

It 
with  perhaps  only 

noting 
a  model  of 
Europe 

It 
scarcely 
continental 
olIgopsonlstlc, 
sources  of 
which  would  be  able 
Norway,  Algeria 
consortia  which  effectively 
buyers 
function 
party  access  were  to  double  or  treble 

Incremental  gas  for 
to  sell 
and,  maybe, 

reduce 
This  market 

like  a  perfectly 

to  a  handful. 

International 
perfect 
effectively 
three  or 
the  coming  ten 

to 

four 

large 

competition. 

gas  market 

Is 
in 
oligopolistic/ 
potential 
years 
fifteen 
(USSR, 
to  consumers 
and 
buying 
Independent 
to 
third-

unlikely 
If 

directly 
the  Netherlands) 

the  number  of 
Is 

therefore 

competitive  market,  even 

the  number  of  buyers. 

situation, 

this  current 
In 
system  on  y as 
open  quest  ion  as  so  much depends  on  the  strategy 
icant 

access 
import  purchase  prices  must  be  regarded  as  an 
signif 

Impact  of  a  third-party 

players. 

the 

the 

of 

competition  may  take  place 

Intensified 
large  new  markets  are  available 
for  example),  but  widespread  price  cutting 
In  the  oligopolistic 

conditions 

(gas-fired 

of 

to  some  extent  where 
generation, 
unlikely 

power 
seems  most 

the  European  gas  market. 

gas  buyers 

there  would 

Nevertheless, 
pressure  on  existing 
Import  deals 
that 
expected 
average  cost  of  gas  Imported 
reduction 
In 
Community,  as  a  result  of 

the  cost 

their 

be  some 

the  best 

Increased 

to  negotiate 
supplies. 

competitive 
possible 
therefore 
the 
the  Community  (2-3%)  and some 
the 

in 

Is 

It 

of  new  gas  production 
Increased  competitive 

within 
pressure. 

for 
there  would  be  a  fairly  modest  reduction 

Incremental 

into 

figure 

the  total 

Into  account, 

Taking  this 
250  million  ECU per  annum  by  2000  for  the  Community  as  a  whole. 
This 
access 
Community-wide  system  of 
additional 

Ion  already  exists  and  a  decision 
third-party 

third-party 
Introduce  a 
little 

"gas  cost"  benefit  might  be 

access  would  have 

the  grounds 

the  UK  on 

excludes 

leg/slat 

effect. 

that 

to 

to  be  achieved 
persist. 

increased  number  of  bulk  gas  purchasers 
the 
level  of  prices  where  gas  Is  perceived 

access  rights  might  exacerbate 

the 

are 

These  benefits 
likely 
"buyers'  market"  conditions 
the 
third-party 
up' 
In  short  supply. 
a  very 
potential 
"buyers'  market"  situation 
fifteen 

favourable 

suppliers 

years. 

of 

It 

is  however  necessary 
situation 

gas  reserves 

the  Community, 
would 

remain 

if 

the 

In  a  "sellers' 

resulting 
tendency 

current 
market", 
from 
"bid 
to  be  becoming 
to  say  that,  based  on 
and 
traditional 
that  a 
to 
ten 

it  seems  likely 
the  next 

for 

of 

to 

-  10 -

16.2 

Gas  Industry 

efficiency 

pressure 

threat  of  direct  marketing  will 
to  bear  on  gas  utilities 

The  competitive 
additional 
non-gas  costs,  especially 
efficiently 
level  of 
benefit 
about  250  million  ECU  per  annum  by  2000  for 
whole. 

also  bring  some 
to  operate  more 
the 
Is  estimated  at 
the  Community  as  a 

their 
The  efficiency 

transmission. 

and  reduce 

at 

16.3 

Income  distribution 

effects 

profit 

trading 

Some  European  transmission 
In 
systems, 
currently 
unit 
order 

it 
below  a  "normal" 

is  assumed 

In 

companies  might  suffer 

the  event  of 

third-party 

a  direct 
use  of 

that 

those  whose  profitability 

level  would  pass  on 

the 

loss 

their 
is 
Increased 
in 

costs 
to  protect  an  already  poor  financial 

to  smaller 

domestic  and  commercial  customers, 

posit/on. 

access 

régime, 

regional 

local  or 

third-party 

distribution 

distribution 

to  choose  between  a  range  of  suppllers. 

On  the  other  hand,  under  a 
large 
able 
regional 
considerable  market  power  on  behalf  of 
and  might  negotiate 
industrial 
organisations 
distribution 
advantage  of 
better 

very 
companies  would  also  be 
or 
These 
their 
companies  would  be  exercising 
consumers 
those  obtained  by 
large 
prices  are  negotiated  by 
larger 
take 
negotiate 

better 
consumers.  As  the  city-gate 

representing 
companies, 
the  possfblIIty 

ones  will 
larger  ones  to 

the  smaller,  and 

smaller 
the 

the  smaller 

the 
also 

terms. 

terms 

local 

both 

than 

the 

for 

the  extent 

To 
companies  to  suffer  a  loss  of  profit, 

third-party 

that 

access  causes 

we would  expect 

transmission 
to  see: 

a) 

b) 

redistribution 
companies 
Germany and  the  Xlnlted  Kingdom;  and 

Industrial 

Income 

users 

from 

of 

to 

In 

transmission 
Italy,  West 

redistribution 
In  Belgium  and  Spain. 

from  small  consumers  to 

large  users 

16.4 

Macro-economic 

effects 

that 

lower 

access 

to  an  Increased 

third-party 
It  might  be  expected 

leads 
to 
to  contribute 
In  world  markets 

To  the  extent 
gas  prices, 
Community  trade  performance 
goods  and  thus 
the 
longer 
nitrogeneous 
gas  accounts 
product  Ion  as  a  whole.  For  this 
Industrial 
trade  effect 
to  be  relatively 
benefit  of  around  125  million  ECU  per  annum  has  been  estimated 
on  a  very  tentative 

Industrial 
Improved 
for  manufactured 
In 
(such  as 
the  cost  of 
for  EC 
external 
modest.  An  annual 

for  only  around  0.5%  of  output 

level  of  economic  activity 

some  manufactured 

term.  Although 

are  very  gas 

value 
the 

fertlI/sers) 

Intensive, 

reason, 

basis. 

to  an 

goods 

likely 

Is 

- 11 -

16.5 

Overview 

For 
2000  are  as 

the  Community  as  a  whole, 
follows: 

the  best  estimates 

for 

the  year 

a) 

b) 

c) 

reduced  border  prices  and  Community  gas 
costs 
that 

"buyers'  market"  conditions 

-  around  250  million 

production 
ECU  per  annum,  provided 

persist; 

Increased 
250  million  ECU  per  annum;  and 

Industry 

gas 

efficiency 

- 

around 

macro-economic 
125  million  ECU  per  annum. 

(trade) 

benefit 

- 

about 

to  around  2%  of 

The  combined  benefit 
equivalent 
annual  gas  supply  costs 
"order  of  magnitude"  nature  of 
mlsinterpretatIon. 
For  example, 
allocation 
were  not  able 
on  supply  security 

of  some  625  million  ECU  per  annum  is 
total 
the  Community's  projected 
the 
and  the  dangers  of 
resource 
that  we 
effect 
terms. 

these  results 
there  are 
from  elfmlnat/ng  monopoly  profits 

Also, 
has  not  been  calculated 

in  2000.  One  should  stress 

the  possible 

to  quantify. 

In  financial 

negative 

benefits 

to  be 

again 

likely 

17.  The  Commission's  evaluation 

Is 
access  would  accrue 

Is  a  potential 
from 

third-party 
there 
the  competitive 
indirectly 
power  generation.  Mediums  I zed 
themselves 
consortia 

purchase  direct 

or  buy  through 

that 
to  very 

pricing 
Industrial 

the  major  direct 

large  gas  users, 

benefits 

consumers 
to 

of 
although 
benefit 
combined-cycle 
companies  who  could  not 
purchasing 
s. 

of  gas 

to 

might 

form 
Independent  gas  marketers/trader 

nevertheless 

for  small  electricity 

The  Commission  will 
intra-Co/nmun/ty  trade  of  natural 
in 
on  the  price  paid  by  all 

the  competition 

situation, 

remain  vigilant 

consumers. 

to  the  fact 

that  an  Increase 

In 
together  with  an  Improvement 
Influence 

should  have  an  appropriate 

gas, 

Even  if 
however, 
competition 
modifications 
behaviour. 

the  system  of 
there  may  still 

third-party 

access  were  not  heavily 

to 

take  place 
to 

If 
restrictive 

be  advantages 
third-party 
or 

in 

the  mere  potential 

access 
In 
ant/-competitive 

Itself 

used, 
for 
causes 
business 

in  a  general 
flexible 
otherwise. 

sense, 
gas  supply  system 

therefore, 

ft  may  be  said 

that 

Is  more  likely 

to  be  beneficial 

an  open, 
than 

PART  III 

A  STEP-BY-STEP  APPROACH  TO  THE PROBLEM:  PROPOSALS  FOR  THE 
FUTURE 

18.  To  achieve  a  more  open  gas  market, 

the  market  beyond  the  present 

questions 

following 
of 
on  which 
the  following 

the  Commission  will 

objectives: 

the  Commission 

the 
to  which  the  answers  would  permit  an  opening  up 
These  questions 
the  Council  have 

report  separately 

is  examining 

situation. 

transit 

to 

a) 

b) 

b)  bis 

c) 

competition 
not 

distorted 

that 
Is 

ensuring 
environment 
predatory 
or  other  ant  I-competitive 
gas 

Industry 

players; 

pricing 

practices 

or  by  discriminatory, 

within 

the 
by  State 

new 
aids, 
collusive 
on  the  part  of 

removing  barriers 
gas  created 
rights, 
commercial 

statutory 

agreements; 

to 
free 
by  statutory 

competition 

In 

monopolles, 

restrictions 

and 

natural 
exclusive 
restrictive 

making 
including 

uniform 

the 

common  commercial 

policy, 

extension 

to  the  natural 

gas  sector; 

albeit 

this  point 

the  Directive 
Is 

in 
the  expediency  of  repealing 
power  plants, 
pertinent 
than  a)  and  b)  above.  This  would  create  a  large  new 
competition. 
market 
Issue 
Intends 
The  Commission 
this 
In 
new 
of 
Community  energy  policy 

for  gas,  allowing  more  room  for 

to 
preparation 

to  come  back 

objectives. 

framework 

on  gas 

less 

the 

the 

of 

In  that  perspective, 

the  Commission  also  considers 

It 

necessary 

I) 

II) 

III) 

to  establish 
to  guaranteeing the  free  circulation 
the  Community, 

the  modal /ties 

necessary  with  a  view 
In 

of  natural 

gas 

Introduce 

to 
system  of 
grid, 

"gas 

to  gas"  competition 

third-party 

access 

to 

the 

through 
a 
transmission 

to 
actively 
Investments 

promote 

a  Community  dimension 

of 

In  the  transmission 

system. 

To  provide 
"step-by-step" 

approach  as 

follows: 

an  answer 

to 

these 

Issues, 

the  Commission  envisages 

a 

-  13 -

A. 

Introduction 
enforcing 
Community 

of  a 

legal 
the  obligation 

Instrument  on 
transit 
to 

the  modal It  les  of 
the 

gas 

In 

natural 

19.  As  explained  above  (paragraphs  11  and  12), 

there 

is  already  a 

great  deal  of  international 

trade 

in  gas  In  the Community. 

through  arrange 
Natural  gas  circulates  within 
ments  between  pipeline  owners.  We have  referred, 
in  paragraph  10, 
to  a  number  of  Joint  venture  pipelines  which  carry  gas  on  behalf  of 
the  partners 

in  the  Joint  venture. 

the  integrated  grid 

Gas  is  a/so  transported  on  a  tariffed 
than  a  Joint  venture 
basis.  These  arrangements  are  a/most  all  made on  long-term  basis 
between  gas 

util/ties. 

rather 

20.  There  may  be  restrictions 

to  the 

national  borders  due  to  the  existence  of  some legislation 
istrative 
prevent  normal  commercial  arrangements  between  Interested 

obstacles 

to  gas 

trade 

free 

flow  of  natural  gas  over 
or  admin 
(see  paragraph  18)  which  may 

parties. 

In  view  of  achieving  a  more  integrated  European  gas  market, 
the  right  of  transit 
seems necessary  that 
the  EEC Treaty  be  effectively 

it 
set  up  In  principle  by 

enforced  by  Member  States. 

A  draft  Council  Directive 
100a). 
(legal 
enforcing 
transit 
between  transmission  companies. 

basis:  Article 

the  right  of 

on  this  subject 

Is  attached 

in  annex 
for 
the  modalities 
transport  of  natural  gas 

contains 
the 

it 
for 

21. 

to  assist 

In  order 
necessary  modal ft  les  for 
up  a  representative 
networks. 

the  Commission  In 

the  preparation 

Increased  access  to  transit, 

body  of  organisations 

responsible 

of 
the 
It  will  set 
the 

for 

This  organ/sat  ion  will  be  responsible 
In  studying,  when  requested: 

for  assisting 

the Commission 

the  conditions 

(technical, 

financial, 

legal)  of 

transit; 

the  appropriate  measures  to  encourage 
exchanges  and 
Improve 
developments; 

Infrastructure 

the 

the  development  of 
through  shared 

the  conditions 
the  development  of  new  equipment 
transport  of  gas; 

required 

to  encourage  advanced  cooperation 

in 
the  product Ion  or 

for 

the  possibilities 
countries. 

for  cooperation  with  entitles 

In 

the 

third 

- 14 -

request, 

the  Commission's 

this 
to  act  as  a  prlvlledged 

At 
responsible 
secure  agreement,  by  conciliation, 
on 
Finally, 
Comm/ss/on  on  its 

operations, 

actIvltles. 

organ/sat 

transit 

this 

which  are 

equally 

be 
organ/sat 
Ion  will 
to 
forum  where  one  would  seek 
between  the  companies  concerned 
interest. 
the 
to 

the  Community 

report 

In 

Ion  w/ll  make  an  annual 

22.  Finally, 

In 
dlscrI  ml nation 
rights, 
transit 
followed 
present, 
for 
investment 
establish, 
elements: 

production, 

to 

order 
during 
and  because  of 

the 

be 

able 

to 

avoid 

limited 

phase  of 

the  different 

in  the  Member  States 
commercialisation 

to  put 
and  distribution, 

distortions 
the  setting 

and 
up  of 
strategies, 
past  and 
In  place  arrangements 

methods  of 
the  Commission  will 
following 

the 

regarding 

financing 
before  1  July  1990,  transparency 

and  product  ion 

Itself, 

financing  of 

investments; 

arrangements 
commercial/satIon 
Member  States. 

relative 

to 

the 

and  the  distribution 

financing 

of 
of  natural 

production, 
the 
In 

gas 

B. 

Third-party  access 

23. 

In  view  of 
17), 

the  Commission  proposes 

the 

following: 

the  above ment Ioned  evaluation 

(see  paragraphs  14 

to 

(I) 

(II) 

Its 

parties 

pursue 

In  order 

consultation 

the  Commission  will 
all 
Interested 
one  year 
third-party 
needs 
conditions, 
of 
security.. 

to  examine 
access  to  the  European  transport 
and, 
If 
to  guarantee 

with 
during  a  maximum period  of 
In  depth  whether 
system 
so,  under  what 
the  maintenance 
to  consumers  and  supply 

to  be  organised, 

the  quality 

of  service 

In  order 

that  purpose, 

For 
committees, 
with 
mission  and  distribution 

interested 

one  with  Member  States  and 
parties 

set  up  two 

consultative 
the  other 
trans 
(producers, 
companies  and  consumers). 

It  will 

the 

Its  decision 

this  consultation, 
concerning 

on  the  basis  of 
take 
will 
of  a  system  of 
transmission 

grid. 

third-party 

the  Commission 
Introduction 
the  gas 

to 

the 
access 

- 15 -

C. 

Promotion  of 
transmission  system 

the  Community dimension 

In 

Investments 

In 

the 

24.  The  objective 

Is  to  ensure  that 

the 

further 

Individual  gas  companies  will 
to 
integration  process  of  the  European  gas  grid.  This 
of 
investments. 

a  separate  Communication  from 

interconnect 

into  account  the 

improve 

Investment  decision 

taken  by 
possibilities 
the 
is  the  subject 
the  Commission  on  energy 

the  coherence  of 

take 

and 

m 

m 

m 

ANNEX 

Proposal  for a 

./^COUNCIL  DIRECTIVE 

ON THE TRANSIT  OF NATURAL  GAS 
THROUGH  THE  MAJOR  SYSTEMS 

THE COUNCIL OF  THE EUROPEAN  COMMUNITIES, 

Having 
Community,  and  in  particular 

regard 

the 

to 

Treaty 

establfshfng 
100a 

the  European 

Economic 

thereof, 

Article 

Having  regard 

to  the  proposal 

from  the  Commission, 

In  cooperation  with 

the  European 

Parliament, 

Having  regard 

to  the  opinion  of 

the  Economic  and  Social 

Committee, 

It 

the 

Whereas 
complete 
European  Councils 
market, 
market  ; 

and, 

Is  necessary 

to  adopt 

the  measures 

required 

to 

Internal  market  by  31  December  1992;  whereas 

have 

recognised 

the  need 

for 

In  particular 

In  Rhodes, 

the  need 

a  single 
for  a  single 

gradually 
successive 
Internal 
energy 

Whereas  there  must  be  greater 
Internal  market 
If  a  single 
component  of 
an  essential 

Integration 

of 

to  be  achieved;  whereas  natural 

the  European  energy  market 
is 

gas 

Is 

the  Community's  energy 

balance; 

profitability 

Whereas  the  objective 
greater 
unacceptable 
the  natural 
this 

objective; 

the  single 

of 
and  security 

natural 

gas  market 

of  supply  by  freer 
whereas 
Into  account 

In 

the  special 

Is 

ensure 
to 
trade  but  avoid 
nature  of 
of 

the  pursuit 

restrict 
gas  sector  must  be  taken 

ions  on  competition; 

there 

Is  already 

Whereas 
between  high-pressure 
Community's  security 
can  be  reduced  by  coordinating 
for  such 
connections 

required 

gas 

of  natural 

Increasing 
transmission 

the  building 
trade; 

trade 

in  natural 

grids 

In  Europe;  whereas 

gas  each  year 
the 
improved  and  costs 
Inter 
the 

of 

gas  supply  can  be 

and  operation 

Whereas 
it 
connections 
not  yet  or  are  not 
and, 
to 
thereby, 
supply; 

is  possible 
to 

and  desirable 

inter 
Integrate  more  regions  or  even  Member  States  which  are 
grid 
gas 

linked  up  Into 
the  security 

the  European 
and  quality 

transmission 
of  natural 

fully 
improve 

the  number  of 

Increase 

to 

-  2 -

need 

Interconnections  between  several  Member  States 

Whereas  In  the  future 
to  be  made  to allow adequate  supply  and  compliance  with 
will 
the natural  gas transit  obligation  will  have the effect  of  reducing 
non-technical  obstacles:  whereas  compliance with  this obligation 
constitutes  a  first  stage  In  the  development  of  the  Internal  market  for 
natural  gas. 

Whereas  this  obligation  must,  at 
the  transit  of  natural  gas  through  high-pressure  grids; 

least  at 

this  stage,  be  confined 

to 

Whereas the  financial, 
must,  as  a  general 
mission  companies concerned; 

technical  and  legal  conditions 

rule,  be  worked  out  directly 

for  such 
between  the 

transit 
trans 

Whereas  the  conditions  of  transit 
bring  about,  directly  or 
competition 

rules; 

Indirectly, 

should  be  equitable  and  should  not 

conditions  contrary 

to  Community 

Is  necessary, 
energy  market 

Whereas  It 
Internal 
approximate  legislative, 
by  Member  States  so as to provide a procedural framework for the formulation of these 
agreements  In  the  most  transparent  manner; 

the 
this 
In  order 
In  satisfactory 
to 
competitive 
regulatory  or  administrative  provisions  passed 

stage  of 
conditions, 

to  realise 

first 

Whereas  It  could  prove  necessary 
1  January  1993,  without  prejudice 
complementary  conditions  governing 
transit; 

HAS  ADOPTED  THIS DIRECTIVE: 

for the Council to 
to 
the  modalities  of 

before 
the  Commission's  own  powers, 
Intra-Communlty 

decide, 

Article  1 

Member States  shall 
with 
the  obligation 
pressure  gas  transmission  grids 
down In  this 

Directive. 

for 

take  the  measures  necessary  to  ensure  compliance 
through  high-
laid 

In  accordance  with  the  conditions 

of  natural 

transit 

gas 

the 

Article  2 

Transmission  of  natural  gas  under  the  following  conditions 
constitute 
the  meaning of  this  Directive: 

shall 
transit  of  natural  gas  through  transmission  grids  within 

41 

- 3 -

(a) 

(b) 

transport 

the 
grid  on  the 

is  carried 

out 

through 

the  high-pressure 

gas 

territory 

of  a  Member  State; 

transport 

the 
companies. 

Is  carried 

out  between  Member  States' 

gas 

2.  Operations 
security 
form  part  of 

Involved 
and  quality 

In  such 

transmission 

and  contributing 

of  natural 

gas supply  shall 

to 
be  considered 
Directive. 

the 
to 

transit  within 

the  meaning  of 

this 

3. 

The  high-pressure 
responsible 
covered  by 
revised  whenever  necessary  by  decision  of 

for 
the  provisions 

them,  which  are 

listed 
In 
this  Directive. 

gas  transmission 

natural 

of 

grids 

and  the 
the  Annex,  shall 
shall 
list 

entities 
be 
be 

This 
the  Commission. 

1.  The  conditions 

of  natural 

gas 

transit 

through  gas 

Article 

3 

grids  shall  be  negotiated 
the  grids 

concerned. 

and  agreed  by  the  bodies 

transmission 
for 

responsible 

2.  Member  States 
examination 
Jurisdiction 
conditions; 

shall 
take 
by 
the  entitles 
of  any  request 

the  measures 
which  come  under 

for 

transit 

according 

necessary 
their 
to 

to 

the 

ensure 
territorial 
following 

request 

Any 
communicated  by  the  request  I ng  entity  or entities to the Commission and the 
national 

authorities-, 

competent 

transit 

within 

shall, 

days, 

eight 

for 

(8) 

be 

The  responsible 
one  month, 
natural 

gas  transit 

requested; 

entities 

to  open  negotiations 

shall  be  obliged,  within 
on 

the  conditions 

a  maximum of 
the 
of 

conditions  must  be  equitable 

transit 

The 
concerned  and  should  not 
restrictions. 
account  of 
transit 
of 

the  responslblI/ties 
for  ensuring  security 

In  particular, 

service; 

Include  unfair 
payment 
of 

for  all 
clauses  or 
transit 
for 
the  entity 
of  supply  and  contractual 

must 
responsible 

parties 
unjustified 
take 
for 
quality 

the 

The  Commission  and  the  national 
Informed,  within  eight 

competent  authorities 
(8)  days,  of  any  agreement  on 

shall  be 
transit; 

after 

negotiations 

If, 
request, 
Commission  and 
without  delay,  by  the 
reasons. 
their 

twelve  months 

following 

the  communication  of 

have  not  achieved 

the  national 

authorities 

an  agreement, 
be 
will 

Interested 

parties  who  have 

to 

the 
the 
Informed, 
indicate 

-  4  -

Article  4 

unjustified 

In  the  absence  of  due  reasons  for  the  failure  to  reach an agreement  or  if  the  reasons 
on  a 
appear 
complaint 
put 
shall 
in  hand  the  procedures  provided  for  by  the  Treaty  or  any  other  appl 
Icable 
provision 

the  requesting  body  or  on  Its  own  initiative, 

of  Community  law. 

the  Commission, 

Insufficient, 

acting 

from 

or 

Article  5 

1  January  1993,  without 
the  Council  will 

Before 
powers, 
complementary  conditions 
transit 

decide 
governing 

. 

to 

prejudice 
-  as 
the  detailed rules of 

far 

as 

the  Commission's  own 
-

Is  necessary 

it 

Intra-CommunIty 

Article  6 

bring 

Into 

shall 
provisions 

Member  States 
administrative 
later 
thereof 
law  which  they  adopt 

and  communicate 

necessary 
than  1  July  1990.  They  shall 

to 
In  the  field 

forthwith 
the  Commission  the  provisions 

Inform 

covered  by  this 

Directive. 

force 
the 
to  comply  with 

laws, 

regulations 
this  Directive 

and 
not 
the  Commission 
national 

of 

The provisions adopted pursuant  to the .first paragraph  shall make  express 
reference to this Directive. 

Article  7 

This Directive  is addressed  to the Member States. 

Done at Brussels, 

For the  Council 

The President 

/4 

Annex 

List of entitles and high-pressure gas transmission  grids 

Member  State 

Entity 

Grid 

Federal 
Republic 
of Germany 

Bayerngas GmbH 

BEB  Erdgas und Erdol  GmbH 

Deutsche  Erdgas Transport 
GmbH 

Grid  supplying  end 
distributors 
(municipal 
authorities, etc.) 
and major 
end  consumers 

Energieversorgung Weser 
Ams AG  (EWE) 

Erdgas Verkaufs Gesell- 

schaft  mbH 

Ferngas Nordbayern  GmbH 

Ferngas Salzgltter  GmbH 

Gas-Union GmbH 

Mob I I 011 AG 

Ruhrgas AG 

Saar  Ferngas AG 

Thyssengas GmbH 
Vereinigte Elektrizltats-
werke Westfalen AG  (VEW) 

" 

N 

M 

u 

Westfalische Ferngas AG 

" 

Energieversorgung 
Mittelrhein 

EWAG,  Nurnberg 

Erdgas Schwaben  GmbH 

Erdgas Sudbayern  GmbH 

GEW Koln 

Gasversorgung  Siiddeutsch-
land 

Gasversorgung  Sudhannover 
Nordhessen 

-  2 -

Member  State 

Entity 

Grid 

Hamburger  Gaswerke 

Landesgasversorgung 
Nledersachsen 

Maln-Gaswerke AG 

Schleswag AG 

Sudhesslsche Gas und 
Wasser  AG 

Technlsche Werke der  Stadt 
Stuttgart  AG 

Thiiga AG 

GASAG, Berlin 

Dlstrlgaz SA 

Dansk Naturgas A/S 

Empresa Naclonal  de Gas SA 

(ENAGAS) 

Catalana de Gas 

Gas de Euskadl 

Belgium 

Denmark 

Spain 

Greece 

DEPA 

Luxembourg 

SOTEG 

Netherlands 

NV Nederlandse Gasunie 

" 

N 

" -

" 

" 

" 

" 

" 

Italy 

France 

Snam S.p.A. 

Gaz de France 

Public grid 

SNGSO 

United Kingdom 

British  Gas 

Ireland 

Irish Gas Board 

" 

ISSN 0254-1475 

COM(89) 334 final 

DOCUMENTS 

EN 

13  12 

Catalogue number : CB-CO-89-398-EN-C 

ISBN 92-77-52840-0 

Office for Official Publications of the European Communities 
L-2985 Luxembourg