10 Security of natural gas supply
| (30188)
15905/08
COM(08) 769
| Commission Communication on Directive 2004/67/EC concerning measures to safeguard security of natural gas supply
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| Legal base | — |
| Document originated | 13 November 2008
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| Deposited in Parliament | 24 November 2008
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| Department | Energy and Climate Change
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| Basis of consideration | EM of 9 December 2008
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| Previous Committee Report | None, but see footnotes
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| To be discussed in Council | 19 February 2009
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but relevant to the debate recommended on the Second Strategic Energy Review
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Background
10.1 According to the Commission,
natural gas is currently the second most important fuel in the
Community's
energy mix, representing roughly one-quarter of its gross inland
consumption, and being widely used in sectors such as power generation,
district heating, households and industry. It notes that the internal
market is currently under development, and has been regulated
by Community
legislation, notably by Directive 2003/55/EC (which lays down
common rules for the internal market), Regulation (EC) No. 1775/2005
(which sets out conditions for access to natural gas transmission
networks), and Directive 2004/67/EC (which specified further measures
to safeguard the security of supply). The Commission
points out that the package of measures it proposed in September
2007 included a revision[66]
of Directive 2003/55/EC, and that, in the meantime, it is required
to present a report on the implementation of Directive 2004/67/EC.
The purpose of this Communication
is to provide such a report, and to examine how the Community
could achieve security of supply more effectively now and in the
future, including which elements of its current policy could be
further developed.
The current document
10.2 The Commission
observes that there is no easy definition for security of gas
supply. It notes that most commonly this means the availability
of gas to users at affordable prices, but points out that a distinction
needs to be made between long-term and short-term security, as
the risks and possible remedies are different. In the former case,
it says that long-term security depends upon management of demand
(notably through the "20-20-20" policy); the evolution
of indigenous production; an effective external energy policy;[67]
the promotion of infrastructure investment; and a well functioning
internal market, providing proper access and appropriate price
signals. In the case of short-term supply security, it suggests
that, although this is high on the current agenda, market failures
may still exist, and that there is at present no defined Community
emergency plan to deal with shortfalls and disruptions.
10.3 More specifically, as regards the implementation
of Directive 2004/67/EC, the Commission points out the different
position of the various Member States (in terms of the availability
of indigenous production, geographic position, geological potential
for storage, historical development of the gas market, degree
of existing interconnection, and different uses of gas), and it
comments that the Directive takes these into account by leaving
them scope to adapt its provisions to their own situation. In
terms of particular aspects of the Directive, it notes:
(i) that, although Member States are obliged
to ensure that household supplies are protected against partial
supply disruption and extreme winter weather, its scope can be
extended to small and medium sized enterprises and to customers
without the ability to switch fuel: it notes that eight Member
States have so far done this, but that the scope of those protected
is defined differently, representing a significant inconsistency
in implementation;
(ii) that the Directive allows Member States
to define the level and duration of what constitutes a partial
disruption of supplies, as well as the level and duration of peak
demand in extremely cold weather (though exceptionally cold, all
winter consumption is defined on a 1-in-20 basis): again, it notes
the different national definitions adopted, and that, whilst some
countries (including the UK) have a very in-depth assessment of
their gas supply situation and the means of mitigation, others
do not;
(iii) that there are substantial differences
in the way in which the roles and responsibilities of market players
are defined, and the respective functions of the Member State
itself, the appointed regulator, and transmission system operators:
it believes that further examination is needed on whether these
differences impede cross-border cooperation during crises, adding
that, although its proposal in September 2007 introduced cooperation
between operators, this refers only to development planning, and
not to short-term cooperation;
(iv) that, although the Directive defines a major
supply disruption as the loss (or risk of loss) of 20% of gas
imports to the Community for at least eight weeks, the Gas Coordination
Group (which brings together Member States, the gas industry,
and European consumer representatives) has concluded that shortfalls
which do not reach this level might nevertheless require a Community
response: however, it points out that this is not in reality a
pre-condition of Community action, since any Member State can
request the Commission to activate the Community mechanism if
it considers that its shortfall cannot be managed adequately at
national level, even if the shortfall in the Community as a whole
is below the defined level;
(v) that the Directive sets out a three-step
Community response to a supply shortfall, commencing with industry
measures, followed by national measures, failing which the Commission
may, in consultation with the Gas Coordination Group, provide
guidance to assist Member States particularly affected, or submit
a proposal to the Council on any further measures needed: the
Commission points out that it has been possible to handle the
most severe shortfall to date (in January 2006) by national measures,
but says that Member States have identified a need to define a
wider (regional or Community-level) emergency plan, since there
are concerns that the present mechanism might not offer an effective
or timely response to a crisis;
(vi) that the Gas Coordination Group has been
a successful means of discussing supply issues and exchanging
best practice, and that, although it is yet to be tested in an
emergency, it has provided an important common political message;
(vii) that the data supplied by Member States
under the Directive are limited in frequency and scope, and are
not sufficient to assess the supply situation of the Member States
or Community, particularly as the obligations in question are
not adequately fulfilled by all Member States, in such areas as
the degree of market liquidity, investment incentives, measures
to cover peak demand, and the competitive impact of security of
supply measures: the Commission notes that new guidelines have
been issued on the quality and level of detail in national reporting,
and that its proposals in September 2007 included major data transparency;
and
(viii) that the Directive provides a non-exhaustive
list of measures for security of supply and national emergencies,
allowing Member States to introduce further instruments (such
as long-term planning procedures and a public service obligation):
the Commission comments that, although this allows Member States
to take into account their national circumstances, it complicates
an assessment of the various instruments from a European perspective.
10.4 The Communication then identifies options
for the future. First, as regards the scope and implementation
of the Directive, it says that consideration should be given to
whether the mandatory provisions should extend beyond households,
and in particular whether supplies to power plants should be covered,
especially where electricity production from gas is significant;
to whether differences between Member States in defining the responsibilities
of the various market players leads to market distortion or hinders
cross-border cooperation; to whether the security of supply standards
adopted by individual Member States are proportionate to the risks
they face (and whether the differences affect competition or solidarity
agreements); and to whether this points to the need to define
such standards in more detail or in a more harmonised way. In
addition, it suggests that consideration should be given to whether
there are any other factors which should be taken into account
beyond partial disruption and extreme weather conditions, and
to the minimum level of short term security of supply for which
every individual Member State has to prepare.
10.5 It then makes a number of specific suggestions,
namely that:
(i) since a number of countries are linked to
the same major pipeline infrastructure, gas markets have a largely
regional character, and provision should therefore be made in
the existing three-step response for Community
assistance to be requested if supply disruption cannot be managed
adequately at a regional level;
(ii) the action to be taken by the Community
in such an event should be defined in order to provide a clear,
foreseeable and timely response, leading to an effective EU Emergency
Plan, specifying the nominal level of market operation, prevention
mechanisms, and pre-emergency and emergency levels, and including
adequate compensation mechanisms;
(iii) there should be security of supply margin,
aimed at guaranteeing to households and other protected entities
an increase in available gas, coupled with the infrastructure
needed to transport it, with the extent of the margin being derived
from re-defined national security of supply standards (and being
expressed as a percentage of average consumption): unaffected
Member States would make available to affected regions any "excess
gas" up to the limit of their own safety margin;
(iv) in the case of strategic storage (involving
the storage of natural gas to be used exclusively for emergencies),
the Commission notes that this is expensive and may be limited
in some areas by geological conditions, in addition to which Member
States have different levels of exposure to risk: consequently,
it does not propose a Community-level obligation, simply commenting
that, if a Member State chooses this option as a national measure,
its use needs to be carefully regulated to avoid market distortions,
and that the development of commercial storage should be encouraged;
and
(v) there should be adequate reporting obligations,
in order to increase transparency and enable the security of supply
situation within the Community to be assessed: this might include
the obligation to publish aggregated levels of supply and demand,
gas in stock, and use of gas storage and LNG facilities.
The Government's view
10.6 In his Explanatory Memorandum
of 9 December 2008, the Minister of State at the Department of
Energy and Climate Change (Mr Mike O'Brien) says that the Government
agrees with the Commission
that there is a need for much more analysis of the emergency measures
which might be appropriate, adding that it is clear that, without
such a mechanism, securing the necessary degree of consensus among
Member States would be lengthy and unwieldy, and hence unlikely
to be of much value when it was most needed. He also regards as
helpful, and in line with the current wording of Directive 200/67/EC,
the Commission's
reference to a need for appropriate market-related compensation
arrangements. As regards the other issues raised by the Communication,
he says that the UK will wish to examine any proposals which emerge
on the harmonisation of supply standards (and the associated methodology)
to ensure that there are no unintended (and possibly negative)
consequences; that it believes that Member States are best placed
to decide whether mandatory protection should be extended beyond
households, and that any such proposals from the Commission
will need to be accompanied by a rigorous cost-benefit analysis;
and that, although the Commission's
thinking on data reporting are generally welcome, it will be necessary
to ensure that the burden of reporting is not excessive and adds
value.
Conclusion
10.7 This is a useful Communication,
which deals with a subject of some importance, particularly in
the light of the impact of Community
gas supplies of the recent dispute between Russia and Ukraine.
We are therefore drawing it to the attention of the House, and,
although we see no need to withhold clearance, we do consider
it to be relevant to the debate which we have recommended in European
Committee on the Second Strategic Energy Review.
66 (28933) 13045/07: see HC 16-iv (2007-08), chapter
1 (28 November 2007). Back
67
The Commission notes that 42% of consumer gas is imported from
outside the European Economic Area (EEA), but that the new Member
States are much more dependent upon such imports. Back
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