Europe opens gas market but entrants face obstacles

The European Union opened up its gas industry to competition on Thursday but opaque prices and difficulties in getting access to pipelines will hinder deregulation, analysts said on Thursday. The EU’s Gas Directive, passed in 1998 after years of political wrangling and which comes into force on Thursday, aims to prise open gas monopolies by allowing large gas consumers to switch to cheaper suppliers.

“It’s a very important start. The principle is established that the customer has choice of supplier,” Niall Trimble, director of UK-based energy consultants, the Energy Contract Company told Reuters. “However, it will be a slow process and new entrants won’t take a large amount of market share overnight.” The directive requires 20 percent of gas markets to be open to competition from Thursday, allowing large scale consumers using over 25 million cubic metres of gas a year to choose a supplier.

But, the pace of deregulation of Europe’s 35.2 billion cubic feet a day gas market varies from one country to another – mirroring liberalisation of the electricity sector a year ago.

Britain’s gas market has been fully open for the last two years and Spain and the Netherlands are opening their gas industries ahead of the timetable in the directive.

In contrast, Germany, France and Luxembourg have failed to pass legislation to formally implement the directive and face legal action from Brussels as early as next month. Both France and Germany say they have achieved competition in practice through voluntary moves by industry. Germany has opened its whole sector while France says it intends to stick to the minimum levels in the directive.

Focus on Germany

All eyes are now on Germany, Europe’s second largest gas market after Britain and where the gas industry recently agreed terms for access to the country’s fragmented pipeline system.

Traders complain the agreement falls short of the directive’s requirements for access and that tariffs are extremely high, saddling new entrants and customers with excessive costs. In addition, they say the complexity of the German network makes it difficult to calculate transport rates and quote prices for potential customers.

“We are confident we are accurate up to the (German) border but after that it is difficult to give accurate prices,” said one executive at a UK gas company who declined to be named.

“We’re getting a growing number of requests from large end users who think the EU directive gives them the right to switch to another supplier but it’s not that simple,” he added. To get gas to end-users, companies often have to negotiate with three or four different network owners, all of whom have different prices, he said.

Under the agreement, companies have to publish their transport tariffs. Thyssengas has already published its prices and Ruhrgas, which has the largest number of high pressure pipes in Germany, will release its prices in the next four weeks.

High UK prices will slow opening

The surge this year in UK wholesale prices will slow the development of competition on mainland Europe as suppliers no longer have access to cheap sources of gas, said Trimble. “The changes won’t be as quick as we might have expected six months ago. The availability of cheap gas is essential for new entrants,” he said.

Nonetheless, there are signs the traditional system of long-term supply contracts is starting to fray. A spot market emerged at Zeebrugge in Belgium following the opening in 1998 of the UK/Belgium Interconnector undersea pipe and other small trading centres are developing along the Belgian and Dutch borders with Germany.