Countries where have LNG operations: Of the 10 companies interviewed, 7 already import LNG into more than one EU country and of these 4 have LNG import operations in the USA. Those who did not already do so all had the ambition to trade LNG in multiple countries. All interviewees were actively pursuing opportunities to either develop their own LNG terminal or gain access to third parties’ in new countries.
Spot / secondary capacity usage: Whilst long term arrangements were widely used, spot or secondary capacity usage was far less practised. No company reported using spot or secondary capacity as routine and 3 interviewees said they would far rather sell ex-ship at the jetty. Two gave their reason for not using this capacity as that of short notice period to source a cargo and to arrange shipping (see below).
Information available: Even where the TO was considered to be providing appropriate / adequate information, 3 interviewees pointed out that the capacity user needed to know more than this and it was necessary to have knowledge of the entire LNG market upstream in order to be an active participant. Furthermore TO could only be expected to publish information regarding short term capacity usage and that long term arrangements were made on a bi- lateral basis.
UIOLI definition: The question of ‘Use It or Lose It’ triggered strong responses from some interviewees. There was a marked difference in attitude depending on whether the terminal in question was owned and operated by a TSO or had been developed by a private company. Even the 2 ‘new entrants’ interviewed were of the view that those developers who put capital at risk should have the right to do what they want with their capacity: one drew a direct analogy with a Southern North Sea gas field. It was generally agreed that UIOLI terminology had been developed originally for pipeline gas infrastructure and was not directly applicable to LNG terminals. Two interviewees explained their views in terms of the ‘option value’. The option value of LNG capacity is different from a pipeline where the notice for capacity usage is usually one day ahead and then the option value of the capacity becomes zero. The option value of LNG regas capacity remains above zero. Two interviewees believed that UIOLI should be better termed “Use It, Trade It or Release It” and one interviewee added that if market signals were working properly then a capacity owner ought not to be forced to send out gas when the market did not require or value it. There were 3 interviewees who criticized long term UIOLI schemes, such as that used in Italy, whereby the capacity rights of the user were curtailed if historical usage had been low and it was pointed out that such a scheme was a disincentive to investment in new terminals. One interviewee went on to report that this system of UIOLI was partly responsible for the Panigaglia terminal being under utilized. Capacity reservation system preferred: Of the 7 companies that expressed a preference, 4 favoured an Open Season for long term capacity and 3 preferred First Come First Served. Two of these interviewees qualified their statement as appropriate for long term capacity and 2 others mentioned that this applied only when there were multiple terminals and/or excess capacity. One interviewee was in favour of first come first served system coupled with effective UIOLI of short term capacity. Only one company was in favour of reserving a specific (small) percentage capacity for TPA, as is proposed in Italy and that it should be offered on a spot basis.
Terminals where failed to get access: Whilst this was not asked explicitly in the questionnaire, several companies illustrated their responses with examples of their attempts to gain access to terminals without success. Seven interviewees gave accounts of markets where they could not gain access for their own LNG: all of them cited France and Belgium. One company finally did get access to a French terminal but felt that they were uniquely positioned to ‘break in’. One company said that they were content to sell LNG ex-ship at the jetty in Spain but not in France and Belgium because of the different degrees of market liberalisation and competition. Another company mentioned that access to the Italian gas
market was not effective through existing terminal and that investment in LNG terminals was required to access the market.
Reason failed: Of those who claimed to have tried and failed to get access 5 gave reasons and 4 of these cited as the reason lack of access to transmission downstream of the terminal. The fifth interviewee gave the more generic reason of ‘obstructive tactics’ by the incumbent, which again included lack of access to transmission downstream. One interviewee claimed that they had lost the opportunity to use a slot because the TO had taken too long to undertake the requisite ship vetting procedures.
Hoarding capacity can distort markets: Of the 5 interviewees who answered this question 4 believed that in a competitive market where the incumbent does not occupy a dominant position the ‘hoarding’ of LNG capacity is unlikely to have a significant impact on the market. One interviewee added that when the terminal is owned by the incumbent consideration needs to be given to their control of all gas import infrastructure – including pipelines – not just LNG. The fifth company was not comfortable with the concept of hoarding but suggested that in a competitive market the non-use or disuse of capacity could be the result of a rational commercial choice on the part of the capacity owner.
TPA to promote competition: Nine interviewees answered this question and all of them regarded LNG as a key method for promoting competition into gas markets but with a number of qualifications. Four of these stated that access to downstream transmission was crucial for LNG (with or without TPA) to promote competition and 3 said that TPA had to be part of a tough regulatory regime that forced the incumbent to allow new players into the market. Two interviewee observed that it was not possible to build a business from spot LNG cargoes or from released UIOLI capacity and therefore long term access was important. Another interviewee, whilst in favour of TPA preferred to see regulations that encouraged construction of more terminals and to let competition in capacity develop.
Impediments to TPA: In addition to the comments about TPA given above, 6 interviewees gave specific examples of impediments to TPA. Two interviewees reported that destination clauses in LNG contracts were an impediment. The lack of un-contracted LNG supplies on the market now and for the foreseeable future was also considered to be a constraint by one interviewee. Three interviewees saw incompatible shipping and quality specs as impediments (see 2 below). One interviewee cited operational factors including short notice periods and short send-out periods (discussed further in 2 below) whilst another cited general inflexibility of operational rules as an impediment.
Conclusions on Access to Terminals:
1.1 The responses from interviews make a strong distinction between terminals where the TSO is owner or operator and terminals developed by private companies.
1.2 They also highlight the difference between the various EU markets and hence any regulations have to take account of the role of LNG in each market.
1.3 The state of development of liberalisation and competition in the market downstream of the terminal was in many instances more the determinant of access than the terminal itself.