The European Gas Target Model and the Greek gas market
The European Gas Target Model (EGTM) aims to build a competitive and secure European Gas market that benefits to all consumers. In the “bridge 2025”, the European regulators set out their thinking on the key challenges and the possible responses to secure the appropriate regulatory framework for the coming decade.
An underlying concept of the new EGTM is that security of supply and competition work in concert. The more diversified are the upstream markets, the less Europe will depend on any one source of supply that may be subject to either physical restrictions or political interference. Moreover, wholesale markets should function properly. This means that traders can offer to the consumers a fixed price contract for a specific period of time and simultaneously purchase the required gas for the same time at a fixed price in the wholesale gas market. In that respect, the Commission scrutinizes long term supply contracts in order to investigate whether these contracts comply or not with the aim of assuring full competition on the wholesale markets. Whereas the long term character of these contracts may be in general justified, specific clauses, such as the Take or Pay clauses or the indexation to oil may be considered as restrictive. In the landmark case of Gazprom’s settlement decision, the Commission found that destination clauses imposed by Gazprom to its buyers, mainly from the East EU Member States, were restrictive, because they allowed to Gazprom to partition artificially the market and thus affected negatively the normal course of competition. Thus, the Commission ordered Gazprom to refrain from applying/abolish such clauses. From the same point of view, the development of an integrated liquid wholesale forward and/or futures market is also of crucial importance. Last but not least, interconnections and transportation infrastructures have a key role to play in achieving a functioning EU market.
Additional measures may be required to enhance security of supply and upstream competition throughout the EU gas market:
Decisions on infrastructures through the development of Projects of Common Interest (PCIs) including intervention to require physical reverse flow capability. Said investments could significantly contribute to ensure that the accessibility of existing gas sources outside the EU is more geographically widespread;
Measures to make appropriate use of storage and LNG including the full unbundling of the storage products and
Positive incentives to increase the upstream market diversification (such as promoting synergies between TSOs to jointly develop complex projects that can bring conventional gas from relatively distant new sources, or regulatory measures imposing to suppliers to split their imports).
Significant developments have taken place during the last years in the Greek gas market. In terms of infrastructure, major projects are in progress: The Trans Atlantic Pipeline (TAP) will transport gas from the Caspian Sea to Europe through North Greece, Albania and Italy. The on shore part of the pipeline is almost completed. The international treaty between Greece and Bulgaria concerning the construction of the pipeline IGB is expected to be signed in coming October. With a capacity of 5 bn cm, IGB will connect the central Balkans with the TAP and the Caspian gas. All necessary licenses of IGB have been issued and the construction is ready to start. An ambitious plan of construction of LNG storage facilities (FSRU of Alexandroupolis, upgrade of Revithoussa and construction of a second on shore LNG terminal in Crete) is ongoing. Concomitantly, important steps have been taken to liberalize downstream markets: distribution networks have been unbundled from supply which is now open to competition and the necessary regulatory framework has been put in place (modification of the Energy Law and adoption of the Codes of distribution networks). Furthermore, due to the recent announcements of the government that it will accelerate the decarbonization targets of the country, by closing down all the lignite-fired power plants by year 2028, it is expected that demand of gas will be significantly pushed up by the need of supply of existing or prospective gas-fired power plants.
However, Greece is a country wholly dependent from imports of gas. Increase of gas demand downstream could contribute to boost competition, only if it is accompanied by further diversification in the upstream markets. Currently, approximately 60% in the upstream market is still being supplied by Russia, although lately more LNG is imported from various sources (notably also from the US), inter alia due to the increase of capacity of the Revithoussa station. Hopefully, the commencement of operation of the aforementioned transmission and storage infrastructures accompanied with the necessary regulatory interventions as above described, will allow to further diversify the sources of supply, reinforcing thus the liquidity in the upstream markets and more generally may transform Greece into a gas hub for all the South East Europe area.