The EU strategy for LNG and gas storage

Nina Howell's picture
Nina Howell, Counsel, King & Spalding
Trinh Chubbock's picture
Trinh Chubbock, Senior Associate, King & Spalding
Comments: 0

In a bid to avoid gas supply disruption and ensure better cooperation between EU countries, the European Commission released new proposals on 16 February 2016 relating to its gas strategy.

The proposals seek to boost energy security by tightening intergovernmental agreements in the energy sector between the EU and non-EU countries and increasing access to LNG and gas storage facilities in the EU. The proposals form part of a wider strategy to provide all Europeans with energy which is secure, sustainable and competitive.

The role of natural gas and the significance of LNG: Natural gas represents roughly 25% of the EU’s overall energy consumption and will likely play a vital role in the EU energy mix in the medium term. Whilst projections for gas demand remains relatively stable, domestic gas production is declining, exposing the EU to increasing import dependency. Further, whilst many Member States enjoy mature and liquid gas markets, four Member States are heavily dependent on a single supplier.

Diversification of the EU’s gas supply is crucial to achieving security of supply, and LNG and gas storage can play a significant role.

In order to exploit the full potential of the global LNG market, the Commission concludes that the EU must: have the necessary infrastructure to allow Member States to access, directly or indirectly, the global LNG market; complete the internal gas market in order to attract LNG deliveries; and cooperate with international partners to promote free, liquid and transparent global LNG markets.

Infrastructure: The EU has an extensive gas grid and LNG terminals that provide sufficient overall regasification capacity. However, LNG terminals are not optimally distributed across the EU and have had low utilisation rates due to higher prices attracting cargoes to Asia. Building new terminals in appropriate locations or improving access to existing terminals will help the EU overcome these challenges.

Existing EU policy framework and funding currently supports the development of the EU’s gas infrastructure by focusing on key projects of common interest (PCIs) which, if implemented, may end single-source dependency.

Internal gas market: Implementation of existing EU energy legislation, in particular the Third Energy Package and network codes, is making substantial progress towards the development of a fully functioning internal gas market. However, whilst the Third Energy Package aims to make market entry more flexible through third-party access to infrastructure, a significant number of LNG terminals are exempt.

The Commission urges Member States to take necessary action to complete the internal gas market by eliminating the remaining regulatory, commercial and legal barriers so as to allow local market effective access to regional gas hubs.

Cooperation with International partners: As the second largest global importer of LNG, promoting a free, liquid and transparent global LNG market is key. The EU must work closely with international partners to ensure that there are no barriers to entry and no limitations on free trade, meanwhile also ensuring that inter-governmental agreements in the energy sector comply with EU law and policy.

The Commission encourages EU energy diplomacy to actively pursue these aims in bilateral and multilateral discussions with Australia, Algeria, the US, Canada and other potential LNG suppliers, and with other major LNG importers such as Japan, in order to pursue common interests in promoting transparent and liquid LNG markets.

Conclusion: By creating better access to LNG and encouraging the emergence of a properly functioning and liquid gas market, the Commission seeks to not only achieve its objective of security of supply but also a more competitive gas market. Commentators suggest, however, that “politics” has the potential to create more barriers by tilting the scale towards one form of fuel and one type of supplier; Brussels should not intervene and allow the market to work it out.

Join the Conversation: What are your thoughts on Europe’s security of gas supply? Share your views below.

Subscribe to our Newsletter & Follow us @GasInteract.

Interested in discussing the role of gas in Europe? The European Autumn Gas Conference (EAGC) will explore key micro commercial, strategic and political influences which are driving the EU natural gas and LNG agenda, such as the critical drivers for supply diversification and the immediate term security of demand opportunities. View the conference agenda.

More on Europe’s gas and LNG: