Potential problems with EC’s proposed gas directive amendment

European Commission (EC) proposals to extend the regulations of the Third Gas Directive to pipelines from third countries supplying gas to the European Union (EU) could create problems for existing and future import pipelines to the region, according to analysis by Arthur D Little (ADL). Furthermore, the recent EC–Gazprom settlement makes the amendment unnecessary, and the proposed legislation will fail in its objective of enhancing market competition, potentially even decreasing supply, says the market analyst.

According to a report recently published by ADL, the proposed directive suggests expanding EU regulation to import pipelines from non-EU countries, risking potential legal challenges and future international investment in gas-export infrastructure. Existing agreements between Spain and Italy and third countries, such as Algeria, Libya, Tunisia and Morocco, would need to be renegotiated, creating scope for counter demands. The economic conditions for future pipeline projects such as East Med would become less predictable; creating the risk that gas would go to non-EU markets. Proposed derogations or exemptions cannot be guaranteed, and their outcome is uncertain. This could have a detrimental impact on supply, and therefore prices – the exact opposite of its stated aims.

In addition, the spring 2018 settlement between the EC and Gazprom set out binding legal obligations, with mandatory actions agreed to prevent alleged anti-competitive behaviour by Gazprom. This significantly changes the EU gas supply landscape, rendering the amendment unnecessary, according to ADL’s analysis. Additionally, greater liberalisation means the market is now beginning to function very well, without requiring further legislation.

Michael Kruse, Partner and Head of Energy & Utilities in Central Europe, explains: ‘The Gazprom settlement has significantly shifted the market context compared to when the gas directive amendment was first proposed. It creates a relevant, important change which needs to be recognised in the ongoing discussions around the amendment, and our analysis recommends carrying out a detailed impact assessment to check it is still necessary. At the very least, the EC should wait for the impact of the settlement to bed in, before introducing further changes.’