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03 February 2012

Mismatch with the Natural Gas Market

So its cold. Very cold. The daily morning walk from home to office is becoming a considerable challenge, no matter the amount of clothing, there's always that bit of skin exposed to the glacial breeze. At sun rise the thermometer can be as low as -15º, with this temperature the light wind cuts like a knife. There's a good side to it though, the anti-cyclones the Arctic has been presented us with have cleared the skies. Fiat lux, after months of grey weather it is like a balsam for your soul, especially with all the snow and ice still covering the ground, the brightness immerses you.

And in what is now becoming an yearly routine the gas supplies from Russia got disrupted once more. This time there's no fundamental economic or political dispute, no bad tempered leaders or tough negotiations, it is simply too cold. Russian stakeholders had to choose between honouring their contracts or let their folk die of hypothermia. I guess it wasn't a hard choice.

Nevertheless, some stakeholders seem to be living in a parallel universe, where none of this is real.

As usual in these situations Italy is the first to suffer the consequences, being the last in the supply line. Late Tuesday the press reported a 10% pressure reduction in the tarns-alpinean pipelines feeding the country. Not an issue they say in Italy, there are reserves and the pipeline from Algeria can also help out. This morning we got the news the supply reductions are already affecting most of the other clients of Russian gas.

EUObserver
Deja vu as Russia gas cuts hit eight more EU countries
Brussels, 03-02-2012

Eight EU countries have joined Italy in noting a sharp drop in Russian gas supplies, in events recalling the massive 2009 crunch.

Gazprom deliveries to Austria and Slovakia reportedly fell by 30 percent on Thursday (2 February). Shipments to Poland fell 7 percent and Czech distributor RWE Transgaz said deliveries are "several" percent lower than normal.

The European Commission on Friday added that Bulgaria, Greece, Hungary and Romania have also been affected.

The cuts began in Italy on Tuesday. Earlier this week it reported a 10 percent drop, but the figure hit 20 percent on Thursday.>
This afternoon the Energy Commission diffused a note to the press that could only have been written in another planet, maybe Jupiter, where methane seems to abound in its huge atmosphere.
European Commission - Press release
EU gas market: Commission refers Ireland and the United Kingdom to Court to ensure European law is properly implemented
Brussels, 26 January 2012

The best way for ensuring security of supply and affordable energy prices is to have a competitive internal EU energy market. An efficient and properly functioning internal market in natural gas will give consumers the choice between different companies across national borders. EU legislation aims at facilitating cross-border gas trade and increasing the capacity on gas markets. The European Commission considers that Ireland and the United Kingdom are not fully in line with EU gas market rules and has decided today to refer these countries to the Court of Justice of the European Union.

According to EU gas rules, the maximum interconnection capacity between Member States and between different gas transmission systems must be offered to the market so that consumers can fully benefit from competition on the market. Only when interruptible reverse flow capacity and short-term services (short term contracts to book gas capacity) are offered, can pipelines be used to their maximum capacity. This means that more gas can be transported and new companies can enter the market. This will give consumers the possibility to choose between different companies and services.
This promotion of the internal market deregulation as a guarantee of supply has been continuously spawned by the Energy Commission in its documents for a good number of years. In spite of its many actions towards the materialization of the deregulated market, decoupling energy transportation from generation, privatizing this way and that, referring and fining any state not willing to follow along, the gas shortages keep on recurring. The Arctic is a stubborn character, no matter how deregulated is the European energy market it keeps sending us those anti-cyclones. And the Ukrainians, why do they insist on their demands for half priced gas? And the Russians, why do they want someone else to pay for the maintenance of the Ukrainian pipeline network? Don't they get that our market is now deregulated?

Sarcasm apart, this lack of vision and/or dogmatic approach to resource policy can only leads us to a serious crisis one day. Ahead of any internal market politics must be the guarantee that there are effectively things to trade. Europe must ensure proper mechanisms exist to maintain the gas grid in transit neighbours, like Ukraine, in a sustainable fashion, even if it means to start taking the bill. Europe must seriously commit itself to the modernization of the energy infrastructure in Russia, increasing efficiency in all stages of the energy process, from extraction to transport, to generation and final consumption. It wont be a free initiative, but like the parable tell, the ant had to work in advance during summer to be ready for winter; as for the cicada, that one probably spent its summer days dreaming of deregulation.

Have a nice weekend and stay cosy.