Measuring up the energy markets

Date: 15/10/1998

FREE competition for gas will not necessarily flow from filling in the gaps in the infrastructure. One of the biggest questions which the European Commission and governments will have to settle over the next year is how companies will charge for the transmission of gas through their pipelines. “This is a key issue where we do not have any fixed solutions yet,” said one official.

There has traditionally been a thriving trade in gas in Europe, with around 50&percent; of current supplies crossing more than one border. However, the rules governing such transport have never been clear and have never evolved into anything like a code which could be developed into guidelines for a liberalised future.

Two possible solutions have been suggested to settle the issue of how charges for gas transmission could be levied in the future. One is the so-called 'postage stamp' option where a fixed charge is levied irrespective of the distance travelled. The second would increase fees by the kilometre.

The issue is not as simple as it might appear. How far does a cubic metre of gas travel when it enters a pipeline and comes out at the other end? Does the gas merely displace gas already in the pipeline, in which case no distance is travelled at all, or does the cubic metre of gas travel the whole length of the pipe? These are the sorts of arguments which will have to be settled for both gas and electricity liberalisation.

The UK example offers another option. Here, transmission pricing is partly based on the demands placed on the pipeline. For example, the price for gas travelling south and south west from the North Sea and east coast reserves to London and the home countries is a lot higher than for that travelling in the opposite direction.