Since the entry into force of the Third Energy Package in 2009, major improvements have taken place in the European gas sector. Most gas incumbents have been unbundled, creating independent TSOs to facilitate market liberalisation and integration without discriminating between suppliers, traders and shippers. Trading hubs have been established across Europe, and many markets across Europe (in particular in north west Europe) have now gained access to lower, competitive prices set by market forces. Significant investments in pipeline interconnectors have been made and continue to be made to strengthen cross-border gas flow in central and eastern Europe, and nearly all member states have built LNG terminals, enabling them to import LNG as an alternative source of gas. These initiatives and obliging pipelines to operate at reverse flow in the event of emergency have also significantly improved Europe’s resilience to potential supply disruptions. Despite this significant progress, the EU’s dependency on gas imports has increased. Already, in 2016, the EU imported more than half of its energy needs, and the replacement of the Dutch gas production capacities will lead to rising import needs in the future. Furthermore, the share of Russia in extra-EU imports of gas amounts to 44 per cent in trade value and for 11 member states more than 75 per cent of gas imports come from Russia (if completed, Nord Stream 2 is likely to increase Russian imports in the long-term), while production from Norway (the EU’s second biggest supplier) has remained stable but is not expected to increase significantly in the future. At the same time, plans to build pipeline infrastructure in the Southern Gas Corridor to import gas from the Caspian region have yet to be completed, and LNG is currently sold at higher prices than pipeline gas.
Ensuring security of gas supply and a fully integrated European gas market, therefore, are and will remain the key objectives of the Commission’s strategy for the European gas sector.
Several legislative steps have been completed on that front over the last two years. In 2017, the new Decision on IGAs between member states and third countries in the field of energy was adopted to ensure that new IGAs are more transparent, comply with EU rules and enhance the security of supply by giving the Commission a more active role in future negotiation processes. In addition, the new Security of Supply Regulation aims at better cross-border cooperation and more solidarity in case of crisis. Additional measures have been taken to further improve cross-border flow and trade of gas to fully integrate the European gas market, including the adoption of the Network Codes on CAM and on Rules regarding Harmonised Transmission Tariff Structures for Gas. In December 2018, the new regulation on the governance of the Energy Union (Regulation (EU) 2018/1999 of 11 December 2018) was adopted, which defines how member states will cooperate both with each other and with the Commission to reach the ambitious objectives of the Energy Union and sets out control mechanisms (including the obligation to prepare national energy and climate plans for the period 2021 to 2030) to ensure that the targets are met, and that the range of actions proposed constitute a coherent and coordinated approach.
At the same time, the Commission uses all its available policy instruments to ensure that member states and companies fully respect the Third Energy Package and strictly enforce the EU competition law rules. In 2018, for instance, the Commission continued to closely monitor compliance with the Third Energy Package, rendered several opinions on draft certification decisions in relation to gas TSOs in Italy, Latvia and Spain, and approved the conditional exemption from Third Energy Package rules for the new IGB pipeline between Greece and Bulgaria, which is planned to start importing gas from the Caspian region by 2020.
The EU’s import dependency on Russian gas is expected to continue to play a major role in the Commission’s enforcement in the coming years. Previously, Gazprom withdrew its South Stream pipeline project plans after the Commission had expressed its concerns that the pipeline plans were in violation of the Third Energy Package and the unbundling rules in particular. In August 2018, the WTO delivered a ruling rejecting Russia’s claims concerning incompatibility of the Third Energy Package with WTO rules supporting the Commission’s enforcement of the Third Energy Package and its ownership unbundling rules. Further developments on the plans for expansion of the existing pipeline connections between Russia and Germany through the Baltic Sea (Nord Stream 2) should, therefore, be observed with great interest. The Commission has continuously expressed its concern that Nord Stream 2 runs counter to its gas source diversification strategy, and the project faces significant opposition from some member states, including Poland as it fears higher prices and less gas transit in the future. To ensure that the project is implemented in line with the Third Energy Package, however, the Commission recently requested the member states to negotiate the IGA with the Russian Federation and proposed to widen the scope of application of the Third Gas Directive to gas pipelines to or from third countries (see questions 3 and 33). Interestingly, in this context, the Commission decided to amend its original exemption from the Third Energy Package rules for the OPAL pipeline, which connects Nord Stream 1 in Northern Germany with gas infrastructure in the Czech Republic. While OPAL has been fully exempted from EU energy market rules since 2009 (except for dominant undertakings including Gazprom), the Commission’s decision now exempts the use of only 50 per cent of OPAL’s capacity from third-party access rules and makes the other 50 per cent subject to stringent EU market rules. This decision was largely endorsed by the German energy regulator, but raised significant criticism for allegedly expanding Nord Stream’s capacity and allowing Russian gas to bypass transit countries Ukraine and Poland and thereby threatening gas supplies to central and eastern Europe (an appeal is pending before the Court of the Justice of the EU (case C-117/18 P)).
Furthermore, the Commission is closely monitoring the correct implementation by member states of the Third Energy Package at national level. Twelve infringement proceedings are currently pending. In the course of 2018 alone, the Commission issued a reasoned opinion to Bulgaria, referred Germany and Hungary to the Court of Justice of the EU for failure to fully comply with the Third Gas Directive and sent a letter of formal notice to Poland for failure to comply with the Security of Supply Regulation.
Parallel enforcement of the competition law rules in the gas sector remains an integral part of the Commission’s strategy, as reflected in the enforcement actions it took during 2018. It successfully completed two article 102 investigations against Gazprom and BEH to dissolve bottlenecks in central and eastern European gas markets. The Commission has also made progress in the pending investigation against the Romanian TSO Transgaz for allegedly hindering gas exports and market tested commitment proposals aimed at guaranteeing gas exports to neighbouring member states and diversifying gas supply routes in autumn 2018. In addition, it opened a new investigation against Qatar Petroleum for alleged territorial restrictions concerning LNG imports into Europe, an integral part of its strategy to diversify gas supply sources.
Having the right infrastructure remains a precondition for security of supply and fully integrating the internal gas market in Europe. The EU supports the implementation of major infrastructure projects, particularly the Projects of Common Interest (PCIs), through all available financial means (including the Connecting Europe Facility (CEF), the European Structural and Investment Funds and the European Fund for Strategic Investment (EFSI), to leverage the necessary private and public funding. In January 2018, member states agreed on a Commission proposal to invest a total of €150 million out of the Connecting Europe Facility in key European gas infrastructure aimed at improving the north-south gas interconnection in western Europe (between Malta and Italy and the Iberian peninsula and France), interconnections in central and eastern and south-eastern Europe, the Southern Gas corridor (including CyprusGas2EU project, €101 million to end the current energy isolation of Cyprus) and interconnections in the Baltic gas markets. Furthermore, in May 2018, Bulgaria and Serbia signed a joint commitment to implement the gas interconnector between Bulgaria and Serbia providing a new supply route within the south-east European region, and the Commission will be contributing a pre-accession grant of €49.6 million to the Serbian side of the interconnector. Finally, in November 2018, the Commission opened a call for new strategically important gas projects to be submitted as candidates for the fourth EU PCIs list.
Investments in LNG infrastructure play a particularly important role in the Commission’s strategy to improve the access of all member states to LNG and storage as an alternative source of gas. To date, the EU has co-financed or committed to co-finance LNG infrastructure projects worth over €638 million. In addition to the existing 150 billion cubic metres of spare capacity in the EU, the EU is supporting 14 LNG infrastructure projects, which will increase capacity by another 15 billion cubic metres by 2021. Given their strategic importance, current capacities are being expanded and new capacities are being developed in the Adriatic Sea (Croatia), in the Baltic Sea (Poland) and in the Mediterranean Sea in Greece (the upgraded LNG terminal in Revithoussa was inaugurated in November 2018).
As far as national state funding is concerned, the Commission is actively monitoring and ensuring the compatibility of state support for gas infrastructure and other projects with state aid rules, in particular its state aid guidelines for environmental and energy aid.
Back to top