January 2020 ‘Finding a home’ for global LNG in Europe: understanding the complexity of access rules for EU import terminals OIES PAPER: NG 157 Katja Yafimava The contents of this paper are the author’s sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright © 2020 Oxford Institute for Energy Studies (Registered Charity, No. 286084) This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgment of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies. ISBN 978-1-78467-155-6 DOI: https://doi.org/10.26889/9781784671556 i Preface The importance and relevance of LNG for European gas balances has increased substantially in the late 2010s after several years of relatively low import levels and under-utilised regasification capacity. For some this was simply a question of the most efficient means to acquire competitive gas supplies through existing infrastructure, while others built new regasification terminals for supply diversification and security. In 2019, European LNG imports increased by more than 40% compared with the previous year and the main question for exporters had changed from whether the EU would be willing and able to compete with (principally) Asian countries for global supply, to whether they would be able to find a home for their cargoes in an over-supplied market. As the EU is the only major gas market with third party access to LNG terminals, this means that exporters can always place a cargo for which no other market can be accessed unless the owner of the terminal or the buyer agrees. The global LNG supply surplus – generally known as `the glut’ – looks set to remain for up to 3 years and, given the large number of final investment decisions for new projects already announced in 2019 with more in prospect for 2020, could continue for longer. This is a major reason why we have seen major LNG exporters buying the entire primary capacity of European regasification terminals for a 15-year period (on average), raising the question of the availability of capacity in specific locations for those who do not have such contractual arrangements. This situation makes it increasingly important for all European gas stakeholders to understand the regulation of third party access to LNG terminals. The access regime is complex and varies significantly depending on whether the terminal is regulated or exempted from TPA. As such it is somewhat akin to the regime for pipelines which Katja Yafimava dealt with in a previous publication.1 The detail of the regimes for different terminals, set out in this study, will be important for suppliers needing to understand the rules for buying capacity for different time periods. Together with Katja’s previous paper, these studies provide a complete picture of the regulation of access to EU gas infrastructure. Professor Jonathan Stern Oxford, January 2020 1 Building New Gas Transportation Infrastructure in the EU – what are the rules of the game? OIES Paper NG 134 (2018). ii Acknowledgements This paper, which explores regulatory aspects of EU LNG import terminals, complements my previous work on EU pipeline gas regulation. Researching and writing the paper has been a challenge because the complexity of the topic required me to painstakingly distill specific LNG-related provisions from the EU acquis, understand their implementation by various import terminals, and analyse multiple exemptions. I was privileged to count on support and advice from Professor Jonathan Stern, the founder of, and a Distinguished Research Fellow on, the OIES Natural Gas Research Programme, to whom I am extremely grateful for the time he spent on reading and commenting on this paper. I am also grateful to Dr James Henderson, Director of the Programme who has read and commented on the paper as well as to my other OIES colleagues, in particular Mr David Ledesma, Mr Mike Fulwood, Dr Anouk Honoré and Mr Howard Rogers for answering my LNG-related questions. Many others outside the OIES have been very helpful in clarifying various complex issues thus making this paper more accurate – I thank all of them. Special thanks go to Mr John Elkins for his excellent editing, to Mr Darren Lingard for creation of the map, and to Kate Teasdale for her administrative support. Responsibility for all the views expressed and all the conclusions reached is solely mine. iii Glossary / Acronyms ACER – Agency for the Cooperation of Energy Regulators ARERA – Autorità di Regolazione per Energia Reti e Ambiente BBL – Balgzand-Bacton Line CA – confidentiality agreement CAM – capacity allocation mechanism CEER – Council of European Energy Regulators CRE – Commission de Régulation de l'Energie CREG – Commission de Régulation de l'Electricité et du Gaz EU – European Union EC – European Commission ERSE – Entidade Reguladora dos Serviços Energéticos FCFS – first come, first served FSRU – floating storage and regasification unit FSU – floating storage unit GTC – general terms and conditions GB – Great Britain GGPLNG – Guidelines for Good Third Party Access Practice for LNG System Operators ITO – independent transmission operator ISO – independent system operator LNG – liquefied natural gas LSO – LNG system operator NBP – National Balancing Point NC – Network Code NCECP – National Commission for Energy Control and Prices NRA – national regulatory authority OFGEM – Office of the Gas and Electricity Markets OLT – offshore LNG Toscana OS – open season OU – ownership unbundling SCM – secondary capacity mechanism SHB – South Hook Bundle STC – special terms and conditions TA – throughout agreement TAA – terminal access agreement TAC – terminal access code iv ToP – Take or Pay TIRG – Italian consolidated law on the adoption of guidelines for free access to the LNG service TSO – transmission system operator TPA – third party access UNECE – United Nations Economic Commission for Europe UIOLI – use-it-or-lose-it URE – Urząd Regulacji Energetyki v Contents Preface ................................................................................................................................................... ii Acknowledgements ............................................................................................................................. iii Glossary / Acronyms ........................................................................................................................... iv Contents ................................................................................................................................................ vi Executive Summary .............................................................................................................................. 1 Introduction ........................................................................................................................................... 3 1. LNG import terminals in the EU: overview ..................................................................................... 5 1.1 EU LNG import terminals: location, ownership, and capacity ................................................... 5 1.2 EU LNG import terminals: services and tariffs .......................................................................... 8 2. EU regulatory framework for LNG import terminals ..................................................................... 9 2.1 Third Gas Directive and Gas Regulation 715 .......................................................................... 10 2.2 Second Gas Directive and Guidelines of Good Practice for LNG ........................................... 13 Conclusions ................................................................................................................................... 14 3. Regulated LNG import terminals in the EU .................................................................................. 14 3.1 Regulatory treatment of LNG import terminals: an overview .................................................. 14 3.2 Regulatory barriers at LNG import terminals ........................................................................... 23 Conclusions ................................................................................................................................... 27 4. Exempted LNG import terminals in the EU .................................................................................. 27 4.1 Exemption regime ................................................................................................................... 28 4.2 Exempted terminals in the UK: Isle of Grain, South Hook, and Dragon ................................. 32 4.3 Exempted terminals in the Netherlands: Gate ........................................................................ 45 4.4 Exempted terminals in Italy: Adriatic LNG ............................................................................... 48 4.5 Exempted terminals in France: Dunkerque ............................................................................. 52 Conclusions ......................................................................................................................................... 55 Annex 1 ...............................................................................................................................................