ACER assesses that most long-term contracts for gas transportation in Europe will expire in the next ten years
The ACER Market Monitoring Report finds that, compared to the end of 2019, 20% of EU gas transportation legacy contracts' volume will expire by the end of this year, while 60% will expire in 2028 and almost all legacy capacity will cease to exist by 2035. This implies that much more capacity will become available for the market, with bookings depending more than in the past on market conditions.
Capacity rights are split according to the way and moment the capacity was purchased: acquired before the EU implementation of the Capacity Allocation Mechanisms" (CAM) network code (legacy contracts) or after that (CAM contracts or other contracts). Legacy contracts were booked according to non-EU harmonised rules.
The latest Market Monitoring Report, which will be published at the end of September, includes a 30-years-overview of the progressive expiration of EU gas transportation network capacity rights starting from 2016. The chart below shows how sharp the decline in long-term legacy contracts is in the years ahead (the blue bars) as well as the situation as of the end of 2019 of new long-term capacity bookings (the yellow and orange bars).
While the volumes of legacy contracts will not change until their full expiry, the amount of new bookings will change because new capacity will progressively be booked.
Evolution of EU transportation capacity booked by capacity type (2016-2045) - TWh/day
Source: ACER based on ENTSOG.
Note: Includes all EU interconnection points' sides directions, also with third countries, which are in the scope of the EU regulation on transportation capacity allocation (CAM Network Code). From 2020, the new products' categories only include volumes allocated in auctions held until 31/12/2019. The legacy capacity for 2020 has been interpolated in the absence of data. *The category “more capacity open season bookings*" includes specifically the long-term capacity allocated in 2017 via auctions in an ad-hoc open season for two interconnection points located along the routes for further transport from Nord Stream II: Lubmin II and Deutschneudorf-EUGAL. This capacity was assigned before the incremental capacity amendments to the CAM Network Code entered in place.
The trend is to book short-term
Since the implementation of the EU capacity allocation mechanisms network code prescribing standardised bundled products sold through open auctions, the market trend is to book shorter-term capacity products (up to one-year ahead), with limited volumes booked for longer durations. Given the current global gas markets conditions, network users seek to pursue as much flexibility as possible, while avoiding lock-in effects. This is possible since capacity hoarding through long-term contracts has become much more difficult.
This leads to a lower degree of concentration in new capacity contracts compared to legacy capacity contracts, as the former tend to attract additional market participants seeking prompt supply optimisation, thus increasing competition. However, the bookings' degree of concentration of new capacity contracts increases at some specific interconnection points and mainly for the longer-term ones. The reduced interest of EU shippers in new long-term bookings is leading to a rise in the share of upstream producers in such bookings.
New long-term bookings are located in a few Member States
The new European long-term capacity contracts are concentrated in a few, and relatively big, interconnection points, mainly related to the Nord Stream pipelines and to the routes for further transport from there (in Germany, Czech Republic, Slovakia), as shown in the chart below.
EU Member States' volumes of longer-term capacity booked from 2016 (2020 – 2039) – Average TWh/day
Source: ACER calculation based on GSA, PRISMA, RBP.
Notes: Volume of incremental capacity could be included in the allocated auctioned volumes. “Other" includes the other 14 MSs where CAM NC is implemented. “Germany - OS" and “Czech Republic – OS" includes specifically the long-term capacity allocated in 2017 via auctions in an ad-hoc open season for two interconnection points located along the routes for further transport from Nord Stream: Lubmin II and Deutschneudorf-EUGAL. This capacity was assigned before the incremental capacity amendments to the CAM Network Code entered in place.
The analysis' underlying data is accessible at the Market Monitoring Report web data portal CHEST.
Among the many other relevant topics, the Market Monitoring Report will disclose more results on the impact of the implementation of the Gas Network Codes and Framework Guidelines on the market.