A View from Gas Infrastructure Europe (GIE)

Natural Gas Europe had the pleasure to speak with ‎Thierry Deschuyteneer, Executive Secretary at Gas Infrastructure Europe (GIE). This is the last interview in preparation for the publication of the Energy Union package, which will be presented on Wednesday.

We spoke about the uncertainties TSOs, Storage System Operators, LNG Terminal Operators are experiencing at the moment. "While a few years ago the future role of gas was not challenged. Now we see a decrease of gas consumption over the last years and we don’t know what to expect" Deschuyteneer said.

According to the Executive Secretary of GIE, LNG terminals in the Balkans, and projects underpinned by commercial reasons will survive, while strategic storage - if needed - should be financed by Member States. Speaking about future developments, Deschuyteneer also noted that "one important element for the Energy Union is that Europe should remain attractive for suppliers for the future." In this context, he claims gas infrastructures and predictable regulatory framework are "really key".

Gas Infrastructure Europe (GIE) represents the interest of the infrastructure industry in the natural gas business (TSOs, Storage System Operators, LNG Terminal Operators). A couple of years ago, GIE’s President Jean-Claude Depail gave an interview to Natural Gas Europe. He basically said that the most immediate challenge facing infrastructure operators is the lack of a predictable regulatory framework. Is it still the case? How things changed over the last two years? Did they change for good or for bad?

This is still the case, but the reason is a bit different. Now the future role of gas is challenged. This is the result of the political agenda in Europe - the 2030 Roadmap, the targets for 2030. While a few years ago the future role of gas was not challenged. Now we see a decrease of gas consumption over the last years and we don’t know what to expect. Forecasts from recognised parties are very wide apart. It is also a matter of political uncertainty that is preventing the good development of gas infrastructures. So maybe projects would be good now, but you don’t know whether they will be still good in 20 years.

With respect to the regulatory framework, from your perspective, did it change for good or for bad?

In most countries, regulators have learnt to deal with new projects. We rather have more problems with the ability of network users to make long-term commitments. But from the infrastructure side, we need these commitments. We also need risk mitigation from regulatory authorities - they can also provide risk mitigation through regulatory arrangements within a country. Other times, though, they cannot provide it, especially for cross-border projects. 

Do you see particular problems in any specific region or do you see difficulties in cross border projects all over Europe?

It is a widespread problem. This is one of the reasons why the TEN-E regulation was proposed to help cross-border projects, especially in some regions where these projects are lacking. The point though is that you see now that players have the tendency to put the market on the side and rely more on public support - Connecting Europe Facility, regional funds. And this is not really the philosophy behind the Third Package, which clearly says that investments should be market-based. 

In the interview I referred to, Depail reported that future investments to extend networks in Europe would have been between 70-90 billion euros in the period 2012 - 2020. Would you confirm the forecast?

The level of 70-90 billion euros stems from an assessment of the Commission, confirmed by ENTSOG in its Ten-Year Network Development Plan. We did not make an assessment ourselves. However, each year, we publish figures for investments that have been done. We recently published a report up to 2013. In the analysis, we see that the levels of investments of operators (transmission, storage, LNG) are in the order of magnitude of 6 to 8 billion euros per year. 

Which is consistent to the forecasts for the period 2012-2020.

Yes, it is reasonably consistent with the figures. At the same time, though, you may expect that this level would decrease in the coming years, because a lot of financial investment decisions have been postponed, certainly due to the fact that gas demand has decreased. A part of these projects have been put on hold. Other projects - interconnections, reverse flows - would continue nevertheless. 

Could the postponed projects see a revival as a result of a renewed political willingness both on a national and continental scale?

Let’s make a distinction between what the market needs and what is required to ensure security of supply. For instance LNG terminals are currently used at low capacity.You will not see investment decisions for such projects unless they will lead to an increase in diversification, playing their important role in security of supply. In the Balkan area, for example, this could be the case. But we are not speaking about 50 bcm/yera. We are speaking about smaller projects. Other upstream developments, like TAP for example, are underpinned by commercial reasons. In general, I don’t think that new supply projects would be subsidised by Europe. A new infrastructure paid by Europe - one from Algeria to Italy for example - is unrealistic. 

What else?

You have storage. Some countries are trying to address security of supply by looking at strategic storage. Some countries could increase the level of storage. It could happen, but they would then have to finance it. 

Financed on a national level?

Member States can decide to have strategic storage for their own customers. This should be financed by these customers.

On a regional basis?

Strategic storage should be used only during emergencies. This is one of the conditions, as a non-market-based instrument to ensure security of supply. On a national level, you can address this condition. On a regional level, it is more difficult. 

In case it happened, where would it happen?

Where a Member State would depend on a limited number of supply sources.

So you don’t see new investments in strategic storage in the UK?

For this reason, no. In the UK, if there are investments, they will be market-based. The UK addresses the problem of decrease in production, which is linked to the fact that it still has to supply the peak. They rely a lot on interconnectors to supply the peaks, but that could be not enough. More infrastructure is likely to be needed in the future. The retirement of coal-fired power plants in the UK will be an important factor to take into consideration. 

Speaking with Fluxys, they told me that they would invest in interconnectors under two alternative conditions: support from Brussels, or long-term contracts. Do you think the second condition - more long-term contracts - is feasible at the moment?

It is a big challenge in the current market. The ability of midstream companies to book long-term contracts is challenged. Well, in the ENTSOG proposal of incremental capacity, you would have auctions for long-term capacity. But it is still a question whether the duration of these auctions is long enough - you have auctions for 15 years, but the first 5 years are needed for the construction. In this sense, the market signal is just for 10 years. 

Jean-Arnold Vinois, former Director in charge of the internal energy market and Honorary Director at the Commission, recently said that European energy policies will change with the Energy Union. You actively work to realise a single, sustainable and competitive gas market based on a predictable regulatory framework. Do you think the kind of drastic changes embedded in the concept of the Energy Union can be easily go hand in hand with a predictable regulatory framework?

I rather think that in the paper of the Jacques Delors Institute, produced by Jean-Arnold Vinois and Sami Andoura, they ask for renewed energy policies, in the way that we should revive the European spirit - cooperation between member states along a common goal. I think this is very the core of what they say - that we should not have completely new energy policies, but rather looking at Europe. This is the big change. It would be a change of mindset, going toward a community approach. I think that this would not impact negatively the predictability of gas infrastructure investments. 

More generally, what’s your own view on the Energy Union? What would you like to see in it? What would you expect?

We would expect from the Energy Union a more consistent approach than today, we would expect improved cooperation between operators, between member states. We would expect gas and electricity to be connected in a full energy system. We are contributing to the Internal Energy Market, which should be a truly European market. Then, we would also expect security of supply achieved through infrastructures. On this point, there is still work to do on cooperation between member states. 

In a sense, you are saying that first hurdle for the Energy Union rests in the lack of experience of member states to work together. Do you see any other complexities, difficulties to realise the Energy Union?

One important element for the Energy Union is that Europe should remain attractive for suppliers for the future. In the Energy Union, there should be a common voice - or better “a common message and several voices”quoting Jean-Arnold Vinois. In this sense, it is important to have a clear message towards producers, making Europe attractive for them. While we ask for security of supply, they are asking for security of demand. And this is justified, because in the whole gas value chain from producers to consumers, most of the investments are made on the producers’part. It is legitimate from them to ask for a reliable framework where you can predict demand on the long term. They don’t like policies which are changing every five years, or which give a very uncertain outlook for the gas demand. 

Do you see any room for common purchasing of gas?

As an organisation of operators, we don’t have a position on gas purchasing. In general, we can say that politics could set the framework between Europe and the producing countries. Afterwards, it would be for the markets to work. 

In general, how can organisations like yours help establish a single voice? Can you comment on current difficulties?

We have to recognise that the new organisation of the Commission is more complex than before. Our field of activities is covered by Commissioner Miguel Arias Cañete, with Maroš Šefčovič, with Vice-President Jyrki Katainen for the Juncker plan, with Timmermans for efficient regulation. Before we had to deal with Commissioner Oettinger and DG Energy only. We try to foster the voice of gas infrastructure operators, bringing common messages. 

How long would you expect the Energy Union to take? How long should we wait to see the results of the process that is just starting? How long will the implementation take?

I rather consider the Energy Union as a process to define a vision. In this vision, you will have several elements that will need to be done, that could be implemented separately. You will have the energy efficiency part, the renewables support, the interconnections, security of supply, external energy policy. There will be a lot of initiatives, but what is important is that they are all going toward the same aim - toward the Energy Union. 

To wrap up the interview, what would be the general message that you would like to send to political actors?

To realise the Energy Union, gas infrastructures are really the key. A lot of gas infrastructures are already in place, but still we need more infrastructures, and therefore we need a predictable regulatory framework including some certainties for what concerns the future role of gas in all the sectors: industry, heating, electricity generation, transportation. Transporting energy as gas is much cheaper than transporting it as electricity. Research and innovation are also key. It is also important to develop new sectors where gas can develop. Gas is a good solution for decarbonisation, for energy efficiency. It is important also to support the development of renewables, with gas as a reliable back-up.

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci