Memorandum by Shell
INTRODUCTION
Shell plays a role in bringing gas into the
European market and distributing gas across the EU. Europe represents
a core operating area for Shell and we are here for the long-term
in both the upstream and downstream operations.
Shell Energy Europe operates a pan-European
gas business with activities and staff spread across 17 countries,
13 of which are members of the EU.
The comments that are offered in this submission
relate mainly to our activities in the European gas market.
As the European Union shifts towards greater
dependence on external energy sources, the need to respond to
the climate change issue and an increasingly challenging environment
in terms of exploration and production, Shell hopes that the outcome
of the various initiatives will result in the promotion of those
factors that are critical to underpinning the future of the sector,
namely:
— free and competitive markets;
— a regulatory environment that is
clear, stable, predictable and applied equally throughout the
European Union;
— a regulatory environment (including
the competition rules as applied to the sector) that encourages
continued investment and allows companies the necessary flexibility
to manage risk; and
— the protection of the environment.
Shell agrees with the Commission's observation
that sustainable, competitive and secure energy will only be achieved
with open and competitive energy markets. We believe that such
markets, operating on a level playing field within a transparent
and stable fiscal and regulatory framework, will best meet this
challenge. Furthermore, we believe that open markets will attract
and retain the necessary long-term capital investment required
to meet future energy needs.
The EU has an important role to play in securing
sustainable energy supplies and the efficiency of European markets,
by supporting enterprise initiatives and ensuring the coordination
of efforts across national governments, including towards non-EU
partners and other stakeholders. A European energy policy can
also contribute to both national and global efforts to enhance;
energy efficiency, energy diversification, ensuring the best use
of indigenous resources and the reduction of carbon emissions.
Shell supports the establishment of an internal
European gas market. In our view it is important that the provisions
of the European Gas Directive are implemented fully and equally
in all European Member States.
GENERAL QUESTIONS
Do you consider further legislative measures by
the Commission to be necessary for the completion of the single
market? If so, what measures would you consider appropriate?
We very much support a level playing field in
the European gas market. To that end Shell has previously stated
its support for the full and equal implementation of the Gas Directive
before considering the possible need for further legislation.
It is only when legislation has been fully implemented that the
need for additional measures can be appropriately identified.
Therefore, as part of the introduction of new
legislation, clarity regarding the steps and available instruments
to ensuring full and unequivocal implementation (of the legislation)
would greatly aid market certainty and expectations. This could
then be expected to have a positive impact on the creation of
a single market.
We would like to stress the importance of a
regulatory environment that is clear, stable and predictable as
we see this as a fundamental requirement for the substantial long
term investments, eg in transportation, LNG facilities and storage,
that will be needed to materialise.
The EU Commission Interim report on the internal
market emphasises the importance of a consistent and effective
set of rules and the necessity for simplification[28].
We fully support this statement. The continued debate around some
aspects of the market, eg the validity of long term contracts
is unhelpful. Also, there exists a tendency towards overregulating
and to be overly descriptive where we believe commercial and market
based solutions are more appropriate.
In taking the development of the European regulatory
framework forward we would like to re-emphasise our support for
the EU Commission's initiative to continue the long-standing process
that builds on the Madrid and Florence Fora. It is in our view
important to include all stakeholders in this process.
Are the current provisions for monitoring market
functioning and performance effective? What evidence is there
that Member States are honouring their obligations equally?
This is of course for Member States and their
Governments to say. From our perspective the European Gas and
Electricity Directives provide a good basis and we support the
full and equal implementation across Europe.
It should be realised that the provision of
information carries cost and liability elements. We support transparency
where it serves a purpose. Information provision should reflect
the practical needs. Information provided either publicly, to
authorities or individually to contract parties has to protect
competitively sensitive information.
Is there a need for greater cooperation between
National Regulatory Authorities?
We support an enhanced European coordination
of regulation of energy markets as this would in our view support
a level playing field. Care must be taken, however, to achieve
fit for purpose regulation that simplifies the rules and reduces
the over-complication currently experienced in some Member States.
With respect to the Regional Initiatives of
the European Regulators' group (ERGEG) that are currently under
way we would like to repeat our comment that such a concept could
exacerbate market segmentation. Given that the lack of integration
between national markets is seen as the most persistent shortcoming
we have doubts about this approach.
Are the current remedies available to the Commission
to enforce single market legislation adequate; and are they used
effectively?
Again, this is for Member States and their Governments
to say. We believe that the Gas and Electricity Directives in
combination with the provisions of national and European competition
law provide for adequate enforcement.
Do the concepts of the "national champion"
and "economic nationalism" pose a threat to the single
market?
As stated, we support the full and equal implementation
of the Gas Directive across Europe. This means that national champions
and economic nationalism must not be allowed to distort the market.
A level playing field must be maintained including non-discriminatory
behaviour and equal treatment on unbundling.
Should there be a greater role for technology
and research in facilitating the single market?
We believe that technology and research have
a major role to play. Our comments in this section refer to the
energy area.
Technology is capable of delivering solutions
in all the areas covered by the European Green Paper on Energy
and for the benefit of society-at-large. Technology has proven
critical in increasing security of oil supply by providing access
to unprecedented volumes of energy resources out of previously
inaccessible regions or locations. Europe is one of Shell's core
areas for research, innovations and solution development.
Technology remains the most reliable and promising
tool to address global environmental concerns without affecting
the standard of living of society at large. Research and technology
can play an important role in increasing energy efficiency; given
that today we waste half of the energy we generate, this is an
area of high importance.
Shell supports the development of a "strategic
energy technology plan" delivering coordination of research
efforts at EU level. European-wide plans should get wider support.
Industry is ready to actively contribute to its development.
Industry is already committed to some "energy
technology platforms". These could benefit from enhanced
project management. Creating international connections on science
and technology is going to be crucially important. Preferentially
forming partnerships internationally could be of benefit to EU
and industry alike.
Shell is a partner in the Energy Technology
Institute announced by the Government earlier this year. This
seeks to commercialise cleaner energy technologies. Shell also
has important technology centres in Aberdeen, supporting our upstream
business globally, and Thornton in Cheshire that specializes in
fuels development.
SECTOR SPECIFIC
Has there been sufficient unbundling of gas and
electricity markets in all Member States?
Shell supports the concept of transparent, free
and non-discriminatory access to networks as outlined in the Gas
Directive.
Our own experience supports the statement made
by the EU Commission concluding that progress in this respect
has been made in Europe. We believe it is at this point in time
more important to ensure a full implementation of the existing
Gas Directive than embarking on new legislative measures.
Before any decisions on enhanced unbundling
proposals are being taken, we believe it is important that available
options and their implications are being fully considered.
Is there agreement on the fundamental importance
of a genuine single market to support a Common European strategy
for energy?
Shell supports the establishment of an attractive
and competitive internal European gas market which is also necessary
to secure global supplies. In our view it is important that the
provisions of the European Gas Directive are implemented fully
and equally in all European Member States.
Europe as a whole will be faced with increased
dependence from imports of energy supplies. In our view this is
not a problem in itself. Most countries, including those that
produce oil and gas require energy imports. External energy policy
should aim to deepen relations so as to stimulate producer countries
to develop their oil and gas resources in the face of increasing
EU and global demand and with the help of international oil companies.
Diversity of supply, access to adequate infrastructure
and long-term contracts are an important basis for security of
supply as is a stable and predictable regulatory environment.
European resources are also essential for the
future EU energy balance. For the investments to come forward
and exploit the remaining potential, a competitive regulatory
regime is required both at EU and national level, including access
to resources, a stable fiscal regime and cost-effective requirements
for operations.
In creating and improving the internal energy
market it is important to recognise the characteristics of this
market. Primary emphasis in recent communications from Regulators
and the Commission on the general structure of the European gas
market has been on short-term markets, hub trading, liquidity
and spot prices. While we acknowledge that there is a role for
short-term business in the gas market, we also see that the gas
business in Europe is fundamentally long-term orientated and requires
longer term economic signals than exist in the traded market at
this time.
Long-term contracts are essentially a risk management
tool. They exist to limit the risk for an investor but also to
give security of supply and thus mitigate the risk of disruption
to energy supplies. In many cases long-term contracts are a precondition
for major investments.
What are the implications for the single market
of the Commission's commitments on climate change?
The challenge is significant and the milestones
that the EU would need to meet by 2025 can be summarised as follows:
— One quarter of all coal fired power
generation capacity will use carbon capture and storage, which
means rapid commercialisation of this technology.
— Natural gas use will grow by some
35% from 2002, mainly from power generation, bringing with it
an increase in import dependency for several countries.
— Nuclear power growth will restart,
which means early clarification of public acceptance issues.
— Renewable energy will grow substantially,
with wind power alone being some 10-15 times the 2002 level. This
means a consistent approach across the EU to renewables development.
— Average on the road vehicle efficiency
will improve by nearly 50% and a zero emissions alternative (eg
advanced biomass fuels or hydrogen from carbon free sources) will
have a strong foothold in the sector (at least 10% on the road).
Source: Pathways to 2050: energy and climate
change (WBCSD)
Should there be a single EU energy regulator?
We support an enhanced European coordination
of regulation of energy markets as this would in our view support
a level playing field. Care must be taken, however, to achieve
fit for purpose regulation that simplifies the rules and reduces
the over-complication currently experienced in some Member States.
Whether enhanced coordination of regulation
necessitates a single regulator is for the Member States and the
EU Parliament to decide. If it did happen, it would be important
to ensure that the regulator's powers, remit and aim were clearly
identified and delineated to avoid duplication and ambiguity.
In any event, it remains Shell's view that before considering
the need for a single European regulator, the more critical issue
remains ensuring the full and equal implementation of the Gas
and Electricity Directives across Europe.
17 July 2007
28 A Single Market For Citizens-Interim report to
the 2007 Spring European Council. COM(2007)60, 21.2.2007 Back
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