Adoption of "The Gas Directive": The completion of the internal energy market has reached its second stage following the adoption of "The Gas Directive" by EU energy ministers on 11 May.

The completion of the internal energy market has reached its second phase following the adoption of "The Gas Directive" by EU Energy Ministers on 11 May 1998. The Directive, setting out common rules for the internal market in natural gas, was adopted without further discussion by the EU Council and follows the text of the common position agreed by Ministers earlier this year.

The Directive concerns common rules for the organisation and functioning of the natural gas sector. The intention is that the Directive will provide a framework imposing general obligations and objectives to be achieved by each Member State of the EC. The method of implementation and the means of achieving those objectives is left with the individual Member State. The general rule is that the Directive must now be implemented in the Member States within two years (although there may be derogations for certain countries in certain circumstances).

The main objective

The Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. It lays down the rules relating to the organisation and functioning of the natural gas sector, including liquefied natural gas (LNG), access to the market, the operation of systems, and the criteria and procedures applicable to the granting of authorisations for transmission, distribution, supply and storage of natural gas (Article 1).

Transmission

"Transmission" means transport through a high pressure pipeline network with a view to its delivery to customers and this excludes the transport of gas through an upstream pipeline network. Defining "transmission" was a point of great difficulty in negotiation. An upstream pipeline network is "any pipeline or network of pipelines operated and/or constructed as part of an oil or gas production project, or used to convey natural gas from one or more such projects to a processing plant or terminal or final coastal landing terminal". The Directive also includes separate provisions governing access to upstream pipeline networks.

Conditions in the market

Member States have to organise their gas markets so as not to discriminate between undertakings with regard either to rights or to obligations. Member States may impose public service obligations, including those relating to security of supply, regularity, quality and price of supplies and to environmental protection. Such obligations must be clearly defined, transparent, non-discriminatory and verifiable. They must be published and notified to the Commission.

Member States are required to ensure that, where authorisation is required for construction or operation of natural gas facilities, the system of authorisation is to be based on objective and non-discriminatory criteria with a view to establishing a competitive gas market (Article 4).

With regard to the system of LNG facilities, storage facilities, other transmission or distribution systems, technical rules establishing minimum design and operational requirements for connection are to be developed and made available. They should ensure interoperability of systems (Article 5).

Reliability and efficiency obligations and obligations not to discriminate are imposed upon transmission, storage and/or LNG undertakings (Articles 6 and 7). Similar obligations are imposed upon distribution undertakings who must operate, maintain and develop under economic conditions a secure, reliable and efficient system, with due regard to the environment (Articles 10 and 11).

Transparency of accounting systems is provided for in Article 13 to detect any abuses of dominant position. Accounts have to be unbundled for all integrated companies in the sector, showing separately details for transport, distribution and storage of natural gas.

System access

System access is governed by Articles 15 and 16 and Member States can opt for either or both procedures which will operate in accordance with objective, transparent and non-discriminatory criteria.

Article 15 deals with third party negotiated access where natural gas undertakings as well as eligible customers, inside and outside the territory covered by the interconnected system, may negotiate access to the system to conclude supply contracts between one another on the basis of voluntary commercial agreements.

Article 16 deals with regulated access where Member States allow natural gas companies and eligible companies access to the system on the basis of tariffs and/or other terms published for the use of the network.

These two approaches are intended to lead to equivalent economic results in Member States and comparable levels of deregulation and market access.

The Directive also allows the national competent authority to refuse access to the system in certain circumstances. A natural gas undertaking may refuse access to the system only on the basis of lack of capacity or where access to the system would prevent its carrying out its public service obligations or where it experiences serious economic and financial difficulties owing to commitments it has accepted under long term "take-or-pay" contracts.

Eligible customers

Member States must specify eligible customers who have capacity to contract for, or to be sold, natural gas. These must include gas fired power stations with a consumption over a certain threshold (although the threshold for co-generators should not exceed the threshold for other customers) and other customers consuming more than 25,000,000 cubic metres of gas per year on a consumption site basis. Member States must ensure that this definition of eligible customers will result in an opening of the market equal to at least 20 per cent of the total annual gas consumption of the national gas market. This percentage figure will increase to 28% five years after entry into force of the Directive and to 33% after ten years (Article 18). Member States may modify their definition of eligible customers in a balanced manner if the definition results in a market opening of more than 30%. Article 19 provides a mechanism for avoiding an imbalance in the opening of the market because of differences between Member States' categories of eligible customers.

Derogations

Certain Member States are entitled to "emerging market" status where, because of implementation of the Directive, they would be struggling with major problems unrelated to "take or pay" contracts. Such countries may be exempt from much of the Directives force for a limited period. Temporary derogations may also apply to geographically limited areas, for example where they require investment.

Upstream pipeline access

Eligible customers must also have access to upstream pipeline networks and these are seperately covered in Article 23. The aim is fair and open access, a competitive market and the avoidance of any abuse of a dominant position, taking into account security, regularity of supply, readily available capacity and environmental protection.