An integrated gas market: A pre-requisite to fulfil the COP21 targets in a cost-effective and socially acceptable manner

Francisco P de la Flor's picture
Francisco P de la Flor, Director for International Organisations, Enagás
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During the last few months, two major EU official events were organised in Denmark and Spain. The Copenhagen Energy Infrastructure Forum took place in May, while the Madrid Gas Regulatory Forum was held in June. Many lessons and good conclusions about the new EU regulatory design and the future role of gas and gas infrastructure can be withdrawn from both events. However, this article will only focus on some of the main ones.

The Energy Infrastructure Forum strongly underlined, among others, the importance of Sector Coupling (gas-electricity) and the need to make gas infrastructure “future-proof” in order to be able to transport, store and trade increasing amounts of renewable/decarbonised/low-carbon gases. Gas and electricity are called to get closer, to have more interactions and much more energy flowing between both systems in both directions. For this to happen, innovation, new technologies such as power-to-gas, and coordinated operation and investment planning are needed to ensure a secure, resilient and cost-efficient decarbonisation process of the energy system. Without Sector Coupling, it would be, either impossible or much more expensive, to integrate the enormous amounts of variable renewable electricity (mainly solar and wind) which will be connecting to the European power grid in the next decades. While 'Sector Coupling' is a key concept, the final target is wider and leads to Sectoral Integration, where renewable and low-carbon energy, be it electrons or molecules, will flow freely between sectors (gas, electricity, industry, transport, agriculture, heating and cooling, etc.) reducing Green House Gas (GHG) emissions and contributing to the circular economy.

Beyond Sector Coupling and Sectoral Integration, the Madrid Forum addressed the potential content of a new EU legislation Package aimed to improve the market functioning, decarbonise the gas system, and “mirror” into the gas regulatory framework some elements from the Clean Energy Package. The European Commission, who also recognises the paramount importance of reducing methane emissions in the gas industry, is gathering knowledge and information through numerous studies, some of them already finished others still on-going or planned. In the second half of 2020, the Commission is expected to come up with this legislative proposal.

At the Madrid Forum, the potential for gas to decarbonise the EU economy by using hydrogen, biomethane, synthetic methane, CCS, etc., was clearly underlined. This process is expected to be much more cost-competitive than 100% renewable electrification since it is based on a robust, resilient and mostly interconnected existing gas infrastructure system which will be able to transport and store energy (molecules) on higher quantities and at much lower costs than the electricity system.

However, today there are still the EU Member States which, more than thinking on the future gas market decarbonisation by 2050, they are still working to ensure their security and diversification of gas supply, to develop a well-functioning natural gas market or to better interconnect and integrate with other major natural gas markets. In those cases, they work to align with the ACER Gas Target model, in order to enjoy a level of interconnectivity, hub liquidity, price convergence, competition and security of supply similar to the more advanced countries such as those located in North-Western Europe. Until this is not achieved, these Member States might have difficulties in changing their mindset and moving towards the next stage: the decarbonisation of gas and gas infrastructure.

On top of that, it should be born in mind that energy consumers are not willing/able to reduce GHG at any cost without social and political consequences. The energy transition cannot be forced at the expense of losing the EU’s jobs and prosperity. The transition needs the right timing, the right framework and the right incentives to succeed in maximising the overall welfare whilst achieving the EU energy and climate targets and avoiding fragmentation.

The Roadmap to a virtually net-zero gas system by 2050 starts exactly by delivering the Energy Union’s vision. A fully EU Integrated Gas Market is a pre-requisite to fulfilling the COP21 targets in a cost-effective and socially acceptable manner while preserving the EU’s competitiveness and affordable energy prices.

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