NMa: call for improvement of 'rules of play' in wholesale gas market

By improving the 'rules of play' in the wholesale gas market, competition and security of supply stand to be reinforced in the short term. Consequently, consumers may profit from price competition emerging among gas providers. Also, government should remove barriers in rules and regulations. In the long run, cross-border investments in import capacity and liquid natural gas (LNG) are required. Thus states the Netherlands Competition Authority in an advisory report presented recently to the Minister of Economic Affairs.

News bulletin 31-07

For a number of years now, the NMa has noted failings in wholesale gas market functioning. These restrict competition in the supply market for gas and adversely affect consumer confidence. The present situation may also hinder private parties investing in the wholesale gas market. In its advisory report, the NMa outlines possible improvement actions geared to positioning the Netherlands as a 'gas roundabout'. Complementary to the NMa's regular monitoring tasks and previous NMa gas market reports, a consultation round involving some 20 market parties provided a basis for the advisory report.

There are two gas transmission networks in the Netherlands, one for the transmission of low caloric gas, the other for high caloric gas. All small consumers in the Netherlands make use of low caloric gas, which is mostly won from the Groningen field. An alternative to Groningen gas lies in converted high caloric gas. The conversion process concerned entails the addition of nitrogen. On grounds of physical and economic constraints inherent to the system, the NMa expects the market for low caloric value gas to benefit to a limited degree only from the internationalisation of the high caloric value gas market.

In its advisory report, the NMa outlines that considerable progress in the domestic market for low caloric gas can be made without having to wait for new investments to materialise. Though GasTerra is the sole provider of Groningen gas, price competition in the market for low caloric gas is feasible, says the NMa. This would require a significant improvement in the availability of quality conversion, to such an extent that wholesale players no longer have to take into account possible conversion. To make this happen, the national gas network operator GTS and GasTerra should, by agreement, solve capacity problems for quality conversion. It must also become common to switch ownership of gas on the high pressure network, as can be done for electricity, instead of at the final destination, where trading is no longer possible. The NMa also advises the introduction of dispute resolution arrangements, in case a dispute should occur between GasTerra and its customers about product offering.

As regards the more internationally oriented market for high caloric gas, the NMa in its advisory report identifies a number of measures aiming to make the market work with a minimum of regulation. These include the physical extension of the gas pipeline network and preventing insufficient use. Also, rules and procedures should be simplified and harmonised with neighbouring countries.

The advisory report may be downloaded from the NMa's website at www.acm.nl. The annual gas wholesale market monitor will also be published here in due course.