Changing Role of Gas

Changing Role of Gas

Future Regulatory Decisions on Natural Gas Networks

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What type of regulatory decision on natural gas lie ahead?

Europe’s ambitious energy transition and decarbonisation goals by 2050 point to a changing role for natural gas. Demand for natural gas is expected to decline over time as the decarbonisation goals lead to a substitution of natural gas with other energy vectors. Therefore national regulatory authorities (NRAs) will need to take regulatory decisions on a wide range of issues such as:

  • the repurposing of natural gas assets for their use as part of hydrogen networks;
  • the potential decommissioning of natural gas assets that become stranded; and
  • the reinvestment of assets that reach the end of their regulatory or technical lives.

ACER commissioned consultants DNV to carry out a study on the “Future Regulatory Decisions on Natural Gas Networks”. The DNV study, published in November 2022, addressing issues such repurposing, decommissioning and reinvestments of natural gas networks.

The information and the views set out in this DNV study are those of the author only, DNV, and may not in any circumstances be regarded as stating ACER’s official position, opinion, or recommendation. ACER does not guarantee the accuracy of the data and the statements contained therein.

What is repurposing, decommissioning and reinvestments?

Repurposing

The repurposing of natural gas pipelines for the use of hydrogen transportation will require transferring natural gas assets to dedicated hydrogen networks. This will require

  • identifying assets
  • defining the value of the asset to be transferred
  • deciding on any incentives for the TSO to transfer assets to hydrogen networks.

Decommissioning

The decline of natural gas could potentially lead to some natural gas assets becoming stranded. This raises regulatory challenges such as

  • identifying different types of decommissioning costs
  • allocating the decommissioning costs and the different measures to prevent asset stranding.

Reinvestments

As assets age and reach the end of their depreciation periods, NRAs will have to take decisions on whether or not to replace these assets or to extend their regulatory lives (where possible or appropriate). The regulatory depreciation times applied for natural transmission assets is often below the technical lives of the assets.

Changing Role of Gas

A bridge beyond 2025

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pipelines

The Bridge beyond 2025 paper jointly released by ACER and CEER in 2019, provides recommendations on the overall framework that could help in reducing the emissions of greenhouse gases and in increasing the availability of decarbonised gases.

See Also
A bridge beyond 2025
pipelines
Documents

Methane emissions

Emissions

​​​​​Methane is widely regarded as one of the main greenhouse gases and its emissions are considered to be the second most important contributor to climate change. In the context of the Green Deal and as a part of the clean energy transition, the European Union has launched a dedicated effort for reducing methane emissions in the energy sector.

The effort takes into consideration the global nature of the industry and that about 80% of natural gas consumed in the European Union is imported. Approaches dealing with methane emissions in the natural gas industry have to account for the entire gas supply chain link, as well as for technology-specific features.

What are methane emissions?
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​ACER is looking at the issue of methane emissions primarily from the viewpoint of sustainability, as a sine qua non for any undertaking in gas infrastructure. Sustainability is one of the criteria that must be met by all projects included in the TYNDPs and in the PCI lists. To achieve the 2050 climate goals of the European Union, a balance must be found between:

  • The scale of the problem and the tools to address it,

  • The costs and benefits of any possible regulatory measures,

  • Best industry practices, technical norms and regulation.​

What's the role of ACER?
See Also
Related Documents

Infrastructure

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​​​​​​Cross-border energy infrastructure is the backbone connecting the European markets and allowing their integration. Gas pipelines, together with liquefied natural gas (LNG) terminals and underground gas storage (UGS) facilities, are the hardware supporting market integration, competition, and enhancing the security of supply in an efficient and sustainable way. If coupled with electricity, gas infrastructure can also support the energy transition towards a less carbon-intensive, and eventually carbon-neutral future.

Gas infrastructure offers flexibility, energy storage and back-up services which are already in place and of significant scale. Gas infrastructure is thus not just an object, but a tool that could contribute positively to the most profound decade of change in the European energy system.​

What is it about?
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​ACER's main tasks regarding trans-European gas infrastructure are performed in close cooperation with the national regulatory authorities and the ENTSOs for Electricity and  Gas. ACER monitors  the implementation of projects creating new interconnector capacity and the Union-wide network-development plans. If ACER identifies inconsistencies between those plans and their implementation, the Agency investigates and makes recommendations to the transmission system operators, regulatory authorities or other competent bodies concerned. 

Each year, promoters of projects of common interest report to ACER their progress. Based on these inputs,  ACER produces a consolidated annual report which highlights the development, construction and commissioning of the projects, as well as possible delays and difficulties in their implementation across Europe.

ACER fosters a proper assessment of the projects of common interest in terms of contribution to market integration, competition, security of supply and sustainability.

What's the role of ACER?
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Network Codes

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​​​​​​Network Codes and Guidelines are important instruments to organise access to the European Union's gas market. They aim at lowering barriers to entry for market participants, promoting market integration and improving market efficiency to the benefit of all EU citizens.

Why are the Network Codes important ?

The gas industry is based on a vast interconnected physical network consisting of pipelines, LNG terminals, and gas storage facilities. Access to the EU gas market depends on access to the cross-border gas networks. To facilitate networks' access across EU Member States, the Union law foresaw to harmonise the relevant market rules in a number of Network Codes and Guidelines.

There are currently four gas Network Codes covering capacity allocation, tariffs, balancing rules, interoperability and data exchange rules, along with a Guideline on congestion management.

  • Capacity Allocation: ensures auctioning of standard capacity products across the EU. The allocation rules foresee bundling of pipeline capacities at both sides of a border and selling them as a single product, thus simplifying trades between neighbouring systems.
  • Harmonised Transmission Tariffs: provides transparent and harmonised measures for the charging methodologies, revenue recovery, reserve and payable price across the EU. These rules facilitate competition and promote the efficient use and development of the gas transmission network.
  • Balancing Rules: market-based balancing rules financially incentivise network users to balance their positions with short-term products. In doing so, balancing rules contribute to the creation and development of short-term gas wholesale markets in the EU.
  • Interoperability and Data Exchange Rules: create operational, technical, communication and business rules for the proper operation and interoperability of gas transmission systems.
  • Congestion Guidelines​: facilitate the efficient use and maximisation of capacities in the gas transmission networks.​
Why are the Network Codes important?

​ACER and ENTSOG are responsible for jointly drafting the Network Codes, which are adopted by the European Commission through comitology procedure as binding regulations. The European Commission is also in charge of developing specific Guidelines, after consultation with ACER and ENTSOG. The Network Codes' and Guidelines' implementation takes place nationally, while the Agency offers guidance and monitors the effectiveness of the implemented rules at European level. ACER occasionally takes individual decisions in case of disagreement between NRAs on a cross-border issue, to ensure a consistent application of the legislation.

What is the role of ACER?
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Decarbonisation of Gas

Gas emissions

​​​​​​Currently, gaseous fuels used in the European Union are dominated by natural gas, a fuel of fossil origin. Natural gas is composed mostly of methane and is consequently associated with greenhouse gas emissions of carbon dioxide when the natural gas is used as fuel or as methane when the natural gas is produced, processed, transported and used.

Decarbonisation of gas can be achieved by different ways and means. In other words, decarbonisation entails different ways by which the greenhouse gas emissions associated with the life cycle of natural gas from its source to the end user can be avoided, eradicated, or mitigated.

On 15 December 2021, the European Commission published its hydrogen and decarbonised gas market legislative proposals. See the ACER-CEER Position Paper on Key Regulatory Requirements to Achieve Gas Decarbonisation (20 December 2021).

The current situation
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One way to decarbonise natural gas is to find ways to produce methane from renewable resources, such as biomass or natural waste. The resulting fuel is typically biogas (a mixture of methane and other gases) or biomethane (resulting from the separation of methane from the other biogas components).

Another way to decarbonise is to replace the natural gas with a sustainably produced non-methane one. Hydrogen produced via water electrolysis with the help of electricity from renewable resources is an example.

A third way is capturing the carbon contained in the natural gas, either before its use (pre-combustion, for example by converting it in a mixture of hydrogen and carbon dioxide destined for storage) or post-combustion, for instance by capturing the carbon dioxide and placing it in long-term geological storage.

There are other possible ways and means to decarbonise gas apart from the examples above. Methane emissions can be eradicated or minimised by applying a host of common sense practices, such as preventing venting during the exploration and production of natural gas, prohibiting flaring (especially when natural gas is produced as “associated gas” along with liquid hydrocarbons), avoiding fugitive emissions from valves and compressor stations, and making sure that burning is not incomplete. 

Many of these “common sense” approaches apply not only to natural gas, but also to methane-containing decarbonised gases.  It is therefore important to develop and deploy the relevant regulatory tools and methods for all methane-containing gases, decarbonised or not.

Decarbonised gases are only produced and used in the European Union on a minor scale, with the bulk being biogas and biomethane. Besides, most of the natural gas is imported (ca. 80%).

The ramping up of gas decarbonisation poses thus numerous challenges, ranging from assuring that the field is level for all available technology options and pathways, to supporting innovation by the right regulation, to monitoring, reporting and verifying greenhouse gas emissions across the entire international gas supply chain, to properly defining “green gases”, to making sure that competition is fair and market integration works.

Across this broad range of issues, ACER is committed to fostering the decarbonisation of the gas sector, by tackling different aspects in its regulatory tasks.

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How to decarbonise?
The decarbonisation journey
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