EDI Quarterly

Contents

1 Enabling Technology Transfer as Part of Strategic Process

4 European Doctoral Seminar on Natural Gas in Groningen

5 Vertical structures in the global liquefied natural gas market: empirical analyses based on recent developments in transaction cost economics

6 The role of gas in smart grids 8 The 2009 EU Energy Regulations: A surprising pattern of recent EU legislation

11 Nabucco: European competition from within

13 Books, reports and upcoming conferences

Q4Volume 2, No. 4, December 2010

UN presents Handbook for Technology Needs Assessment with supporting toolsBy Wytze van der Gaast ( JI Network, Groningen, the Netherlands, jin@jiqweb.org)

Enabling Technology Transfer as Part of Strategic ProcessIn the early 1990s, a framework was established by the UN for international climate policy making. Basic principles for such cooperation have been formulated in the UN Framework Convention on Climate Change (UNFCCC) of 1992 and a more specific set of actions have been agreed in the Kyoto protocol of 1997. In this protocol, industrialized countries are committed to a reduction or limitation of greenhouse gas emissions, whereas developing countries have been exempted from such commitments.1 The Kyoto protocol officially entered into force in 2005.2

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The commitments, policies and measures of the Kyoto protocol have been specified for a period of five years (2008-2012). Since 2005, countries have been negotiating the terms for a second commitment period after 2012 which were scheduled for completion at the Climate Conference of Copenhagen in 2009. However, ‘Copenhagen’ did not result in an agreement and it is presently unclear what a post-2012 climate policy regime will look like.

Nonetheless, negotiations on particular themes have shown progress. One of these themes is acceleration of technology transfer to developing countries, which has been a key pillar of international climate policy making since the UNFCCC.

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In 2001, the UN Climate Conference of Marrakech formalized this by a decision on Development and Transfer of Technologies, which was followed by the Poznań Strategic Program on Technology Transfer (adopted at the Poznań UN Climate Conference of 2008). As a next step, the 2009 Copenhagen Conference suggested the establishment of an international Technology Mechanism “ to accelerate technology development and transfer in support of action on adaptation and mitigation that will be guided by a country-driven approach and be based on national circumstances and priorities.”3

Transfer of environmentally sound technologies to developing countries has been among the ‘popular’ and less controversial negotiation topics. After all, technology transfer is not about emission reduction commitments, which are considered impediments to economic development by developing countries. Instead, technology transfer is about acceleration of innovation which could strengthen economic infrastructures and help solve other problems (e.g., local air pollution). Moreover, whereas the use of unsustainable technologies has been the main cause of the climate change problem, increased use of environmentally sound technologies in both industrialised and developing countries is part of the core of the solution.

However, the process of technology development and transfer is complex. Each country has specific national institutional structures and social networks of actors (e.g., technology providers and private project developers) who operate under their respective policies and regulations. These actors are supported by a range of market services, including quality and assurance practices, research, development and demonstration (RD&D), and financial services that underpin operation of the system. Moreover, the EU-funded study ENTTRANS (2008)4 showed that technologies installed in developing countries under projects for generating greenhouse gas emission reduction credits have often resulted in one-off investments without a clear link to countries’ strategies and therefore with limited knock-on effects elsewhere in the countries.

Handbook for assessing technology needs

In order to support assessment of environmentally sustainable technologies in light of developing countries’ long term visions, the UN Development Programme (UNDP) and the UNFCCC secretariat, have prepared a handbook for “Conducting Technology Needs Assessments for Climate Change” (TNA handbook).5 This handbook guides a country through a step-wise process to identify: a long-term vision, strategic sectors for that vision, priority technologies within these sectors, and, based on these technologies, a strategy for technology innovation within the country. The handbook recommends involvement of stakeholders at all stages in a participatory process.The long-term vision in a country could be based on a vision document

or a national report prepared under the UNFCCC (e.g., Nigeria’s Vision 2020, or National Communication documents submitted to the UNFCCC secretariat6). From this vision, development priorities such as environmental, social and economic priorities can be derived for the country. These priorities can subsequently be used as criteria for identifying those sectors where the greatest improvements in terms of sustainable development in the country can be achieved. This includes the potential for greenhouse emission reduction (mitigation) and/or climate change adaptation improvements.

The next step of the handbook leads stakeholders through a process of identifying priority technologies for mitigation and adaptation within these strategic sectors. Technology choices can be made through a multi criteria decision analysis in which technologies’ potential contribution to meeting development priorities and to climate change mitigation and adaptation are assessed as well as their costs. The result of this analysis is a portfolio of technologies which have relatively large benefits in comparison to their costs (see Box 1 on Benefit to cost ratios).

Box 1. Benefit-to-cost ratios for making technology decisions

In the TNA Handbook, stakeholders assess technologies in terms of potential sustainable development contributions within the country as well as climate benefits. The result is a scoring graph which shows how well each technology scores (through weighted scoring) to different criteria (i.e. benefits) as well as the distribution of benefits for each technology.

Figure 2. Technology scores for given sector in the TNA Handbook

Next, these scores are related to the technology unit costs in a so-called benefit-to-cost diagram. The advantage of this diagram over regular cost-benefit analysis is that benefits do not need to be monetised for comparison with costs.

1 This division of actions in the Kyoto Protocol reflects the UNFCCC’s basic principle of “common but differentiated responsibilities”, i.e. all countries share a responsibility when addressing climate change, but industrialized countries should take the lead.

2 For entry-into-force, the Kyoto protocol had to be ratified by as many industrialized countries as needed to cover 55% of the greenhouse gas emissions of all industrialized countries together in the year 1990. After the ratification of the protocol by the Russian Federation in the late 2004, this threshold was reached.

3 UNFCCC, 2009, Report of the Conference of the Parties on its fifteenth session, held in Copenhagen from 7 to 19 December 2009, FCCC/CP/2009/11/Add.1, p.7 <http://unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf>

4 ENTTRANS, 2008, Promoting Sustainable Energy Technology Transfers through the CDM: Converting from a Theoretical Concept to Practical Action, European Union Sixth Framework Programme <http://jin.wiwo.nl/images/stories/articles/ENTTRANSd2.pdf>

5 The TNA Handbook was presented by UNDP at the UN Climate Conference of Cancun, Mexico, 3 December 2010. It can be downloaded from: http://unfccc.int/ttclear/jsp/TNAHandbook.jsp

6 http://unfccc.int/national_reports/non-annex_i_natcom/items/2716.php

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Instead, the vertical axis shows benefits in terms of scores from 0 to 100, whereas the horizontal axis shows costs in monetary units. Subsequently, the technology graphs can be compared, whereby a steeper slope implies relatively high benefits to costs. In the Figure 3 below, the technology represented by the left graph is preferred, since its benefits are larger and its cost are lower compared to the second technology. Of course, not all comparisons are as straightforward as this one, but the diagrams clearly visualise the decision making context for decision makers.

These diagrams and graphs can be produced with help of the software tool TNAssess which has been developed as part of the TNA Handbook.

Figure 3. Examples of benefit-to-cost ratio diagrams

The final step in the TNA handbook is to explore how well these prioritised technologies can be implemented in the country and where and how the innovation process can be accelerated. This can be done by first assessing the systems, markets or environment within which these technologies are to be implemented. This results in a picture that shows the enabling environment for the technologies (e.g., relevant legislation, culture, etc.), the actors involved in the technology innovation process (e.g., technology owner, importer, retailer, installer, consumer), and the supporting services (e.g., legal support, financial advice, project development consultancy, etc.). Based on this, innovation bottlenecks and inefficiencies can be identified for each technology as well as measures to address them.

Once measures have been identified for accelerating the innovation process for individual technologies, these measures can be aggregated across technologies to formulate a technology innovation plan at the sector level. Similarly, aggregating across strategic sectors enables the formulation of a national strategy for climate technology innovation, including an action plan for implementing this strategy.

The end result of the handbook is a portfolio of technologies for mitigation and adaptation prioritised for the country’s long-term development objectives, with a clear pathway for implementation of these technologies, including their costs and innovation requirements.

TNA supporting tools

The TNA handbook process is supported by two tools, which have been developed under supervision of UNDP: TNAssess and ClimateTechwiki.

TNAssess is a software tool (in Microsoft Excel) which helps country teams conducting a technology needs assessment to collect and store data throughout the process. It also provides support for the multi criteria decision analysis for identifying strategic sectors and priority technologies. The tool helps users to add performance scores for sectors and technologies, weigh these and rationalize the choices. Examples of the presentation of the output from TNAssess are shown in Box 1.

The reason for establishing the ClimateTechwiki.org internet website has been to help stakeholders to become familiar with the technologies being assessed. Earlier experience with technology needs assessment has shown that decision makers and other stakeholders tend to focus only on those technologies that they are familiar with.1 As a result, non-familiar, but nevertheless potentially important technologies, are not considered. In order to support the process of judging the merit for application of a technology in a given country context, further information and familiarization are needed.

This information is precisely what ClimateTechwiki.org intends to offer. On the website, technologies for mitigation and adaptation are described in layman language with a focus on operational aspects, potential contribution to social and economic development and environmental protection, technology costs and potential contribution to reduction of greenhouse gas emission and/or climate change vulnerability. In addition, ClimateTechwiki shows practical examples of technology application. Partly, these examples have been offered by the Renewable Energy and Energy Efficiency Partnership (REEEP), but visitors can also add own projects as examples of technology application.

The ClimateTechwiki has been developed during 2010 by UNDP, UN Environment Programme (UNEP, at the Risoe centre in Denmark), NL Agency, REEEP, Joint Implementation Network ( JIN, the Netherlands) and Energy Research Centre of the Netherlands (ECN). By the end of the year, the site will contain over 115 technology descriptions for climate change mitigation as well as a first set of information about technologies for adaptation.

From here to there...

The objective for 2011 (and beyond) is to develop ClimateTechwiki from an online database to a clean technology platform, with a strong focus on supporting technology transfer to developing countries. Next to technology information, the site will also contain information

1 e.g., ENTTRANS, 2008, see footnote 4; UNFCCC, 2009, Second Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, Note by the secretariat, FCCC/SBSTA/2009/INF.1 <http://unfccc.int/resource/docs/2009/sbsta/eng/inf01.pdf>

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The following researchers presented their work at this seminar. Taede Weijdenaar: Development options for the Dutch gas distribution grid in a changing gas market.• Arnold Mulder: The CCS Value Chain and Incentive Systems• Nicole Herweg: The liberalization of the European natural gas

market• Urko Izquierdo Ereño: Development of Advanced Reaction

Systems for Hydrogen generation • Bas Percival: Understanding cross country differences in

performance in the upstream gas value chain• Hanna Kruimer: Non-discriminatory third party access to the

gas transmission network: what does it mean and where does objective justification of different treatment for creditworthiness reasons come from?

The participants in front of the academy building of the University of

Groningen

Other attendants that did not present were: David Balmert, Errit Bekkering, Julia Trombetta, Laura Barrio, Ivelina Boneva, Leo Hoenders and Steven von Eije

In case you are interested in participating in future seminars or in case your organisation would like to host this event, you may contact Franziska Holz (fholz@diw.de) or Steven von Eije (voneije@energydelta.nl).

European Doctoral Seminar on Natural Gas in Groningen

On October 29th EDI hosted the 12th edition of the European doctoral seminar on natural gas at the University of Groningen. In this edition of the EDI Quarterly you can read about the PhD research of Sophia Ruester, Florent Parmentier and Adina Crisan-Revol, all former participants of the seminar.

This was the 12th seminar, previous editions have taken place throug-

hout Europe.

Date Venue

April 2005 International University Bremen

October 2005 University of Cologne

April 2006 Dresden University of Techno-logy

November 2006 Oxford Institute for Energy Studies

June 2007 University Paris-Dauphine CGEMP

November 2007 State University - HSE Moscow

May 2008 Statistics Norway, Oslo

October 2008 Delft University, Netherlands

June 2009 German Institute for Economic Research (DIW), Berlin

June 2009 Energy Institute K.U. Leuven

May 2010 European University Institute Florence

Previous editions of the European doctoral seminar on natural gas

The idea for this seminar came up in fall 2004 at the Infratrain workshop on modelling of European natural gas markets in Berlin. The initiative was started by Stefanie Kesting (KEMA) and Anne Neuman (DIW). In recent years Franziska Holtz, from DIW Berlin (German Institute of Economic Research), has had a leading role in the organization of the event.

Steven von Eije Energy Delta Institute

about technology transfer support programmes, tools to support making technology choices (e.g., TNAssess using insights from the TNA Handbook), manufacturers of technologies, and a forum where technology practitioners can exchange experience.

Downloads

The TNA Handbook can be downloaded from: http://unfccc.int/ttclear/jsp/TNAHandbook.jspClimateTechwiki can be consulted at: http://climatetechwiki.orgTNAssess will become available on both of these addresses in early 2011.

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power production, entered the market and integrate backward from the downstream to the upstream sector. In contrast, some new entrants invested in non-integrated LNG import terminals operating them as so called tolling facilities, selling the service of unloading, regasification, and storage to third parties, or speculating for short-term deliveries. The occurrence of such a menu of governance forms including vertical and horizontal integration, joint ventures and strategic partnerships, long- and short-term contracts, and spot transactions in one and the same industry is very interesting from a New Institutional Economics point of view. In addition, we observe varying strategies of different companies which are active in similar stages of the value chain, and one and the same company choosing different positions along alternative value chains. Therefore, this thesis addresses vertical structures in the global LNG market and investigates what drives companies towards vertical integration and which external factors determine optimal contract duration of long-term supply agreements.

The first econometric study contributes an empirical analysis that examines the effect of both transaction characteristics and the institutional environment on the choice of governance in the global LNG industry. Using a dataset of 237 corporate-specific value chains, inter-organizational trust is introduced as a so called shift parameter. First, following transaction cost economics, it is hypothesized that specific investments under uncertainty provide incentives to integrate vertically. Second, it is argued that inter-organizational trust changes the relative costs of vertical integration and non-integration and supports less hierarchical governance modes. These economic relationships are tested i) based on a probit model to explain the binary choice between vertical integration into midstream shipping and non-integration and ii) based on an ordered probit model to explain the degree of vertical integration (i.e., non-integration versus integration from upstream or downstream into midstream shipping versus integration along the whole value chain). Estimation results provide broad support for transaction cost economics by showing that relationship-specific investments in an uncertain environment drive LNG companies to invest in successive stages along the value chain. The presence of inter-organizational trust increases the likelihood of less hierarchical governance modes. The consideration of a shift parameter further enhances the explanatory power of the model supporting the need for empirical studies accounting for both transaction cost variables as well as variables capturing dynamics in the institutional environment.

The second study investigates corporate strategies in the emerging global market for LNG, linking alternative theories of the firm in order to explain the menu of strategic positions recently observed in

“[T]he problem of economic organization is properly posed not as markets or hierarchies, but rather as markets and hierarchies.” Williamson (2002, p. 175)

The past decade has seen the global market for liquefied natural gas (LNG) undergoing substantial developments. Driven by growing natural gas demand and declining investment costs for LNG export and import facilities until the mid-2000s, large-scale infrastructure investments have been realized along the whole value chain. Export capacities increased from 108 mtpa at the end of 1999 to 229 mtpa in 2009 (+112%), import capacities increased from 251 to 462 mtpa (+84%) during the same period and the number of operating LNG vessels augmented from 106 to 337 (+218%). New players, countries as well as companies, entered the market. International trade nearly doubled in volume.

During the early years of the industry, most of the world’s LNG export infrastructure remained under state control and private or foreign companies were involved only with minority shares. Inflexible bilateral long-term supply agreements with take-or-pay and destination clauses secured the capital-intensive investments on the one hand and reliable supplies for import-dependent buyers on the other. Ship ownership typically was embedded in these contracts. In today’s LNG market, new flexibility in trading patterns comes from changes in the structure of long-term contracts. Average contract duration and contracted volume are decreasing, take-or-pay requirements are relaxed, options for additional cargoes are included in recent contracts, and destination clauses are eliminated enabling the diversion of deliveries. These long-term contracts are increasingly accompanied by short-term agreements and spot transactions balancing supply and demand in the short- to medium-term. Whereas only 4% of total LNG trade took place under short-term contracts in 1999, this share increased to 20% in 2007. The first export projects without having sold total volume based on long-term contracts are moving forward.

LNG suppliers increasingly follow a strategy of forward integration from the upstream to the downstream sector. Concluding for a sales-and-purchase agreement with the own marketing affiliate and investing at the same time in LNG import capacities, leads to the players controlling successive stages of the value chain. Some companies invest in an entire portfolio of LNG export, shipping, and import positions, enabling them to conduct flexible trades and to benefit from regional price differences. Furthermore, traditional natural gas distributors started to participate in LNG export ventures and also electricity companies, forming part of the extended value chain including gas-fired

Vertical Structures in the Global Liquefied Natural Gas Market: Empirical Analyses Based on Recent Developments in Transaction Cost Economics

Sophia RuesterFlorence School of Regulation

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this dynamic market. In the first step, three alternative target market positions are defined, each supported by an underlying resource profile. In the second step, determinants that move companies towards vertical integration are investigated using the dataset of 237 corporate-specific value chains. Estimation results of a two-step decision making process confirm the so called positioning-economizing perspective of the firm; the three strategic choices of target market position, resource profile, and organizational structure are interdependent. It is shown that national oil and gas companies rely on less idiosyncratic assets than companies following a flexibility strategy, i.e., investing in a portfolio of export and import positions, and that companies following a flexibility strategy rely on less idiosyncratic assets than chain optimizers, i.e., companies investing along a single value chain. Transaction cost economics predictions are also confirmed. Idiosyncratic investments in uncertain environments have a positive impact on the likelihood of vertical integration.

The third study analyses the determinants of contract duration in order to investigate the impact of market structure on optimal governance choice. Contract duration thereby is determined based on a trade-off between the minimization of transaction costs due to repeated bilateral bargaining and the risk of being bound in an inflexible agreement in uncertain environments.

Report of the joint event of EDI at GasTerra, July 1st 2010

On the 1st of July 2010 the Energy Delta Institute (EDI) organized an event on the topic ‘the role of gas in smart grids’ for its partner GasTerra. Three speakers from respectively Enexis, the Technical Uni-versity Delft and GasTerra were invited to discuss the various aspects of this. This report is a summary of the discussion by the attendants. As the event was held under Chatham house rules, the sources are not disclosed.

IntroductionIt was agreed that smart grids are currently a ‘hot issue’. It is expected that the grid will become more or less ‘smart’ in the near future. But the possible role of (natural) gas in those smart grids is currently unknown and has received little attention. Also, it is difficult to say what the role for gas will be in the near future in energy distribution to end consu-mers. Questions that are currently raised are: should we go all electric? Should we work on an exit strategy for gas? Or should we invest in the role of gas in smart grids? Just as important is the answer to the ques-tion who will make these choices: the market or the government?

The role of gas in smart grids Karel van der LingenGasTerra

A role for gasIn order to maintain a role for gas within the smart future, the gas in-dustry has to pay more attention to the image of natural gas. The nega-tive image of being a fossil fuel has to change to a more positive image of being a transition fuel. Some sources show that the role of gas will diminish in the coming decades, but others, like the IEA, state that there clearly is a future role for gas. Gas is not only relatively clean, but also affordable and reliable. This makes gas an interesting fuel for a low carbon future. Other non-renewable low carbon alternatives, like nuclear energy and coal with CCS are currently less attractive, because their public acceptance is low.

Distributed electricity generation A smart grid with smart metering is a solution for the problems arising from high energy consumption by end consumers. On this level, the consumption of electricity will increase strongly in the near future as a result of the introduction of electrical cars and electrical heat pumps. The increased use of the electricity grid will bring a need for large investments in both local and high voltage grids. The increased consumption and the necessary investments will lead to higher energy bills for households. Besides, the aging of the electric network requires major replacement investments in the near future as well.

Furthermore, this study adds an analysis of different dimensions of transaction frequency and their impact on governance choice to the theoretical discussion. Propositions are tested using a unique dataset including information on 261 LNG supply contracts from the beginning of the industry until today. Estimation results of a simultaneous equation model accounting for the endogeneity of the contracted volume show that the presence of high asset specificity results in longer contracts whereas the need for flexibility in today’s LNG market supports shorter agreements. When firms have experience in bilateral trading, contract duration decreases. In addition, countries heavily reliant on natural gas imports via LNG are often willing to forgo some flexibility in favor of supply security. Contracts dedicated to competitive downstream markets on average are shorter than those concluded with customers in non-liberalized importing countries.

Any questions about this thesis or other comments are highly welcome. Contact: sophia.ruester@eui.eu

An answer to these issues would be the increased use of locally generated electricity from the gas grid by using a micro-CHP boiler. Such a micro-CHP boiler produces household heating and some electricity at the same time. This would decrease the need for investments in the electricity grid. Moreover, the price of electricity from a micro-CHP is approximately three times cheaper compared to the consumer price for electricity from the electricity grid. When a micro-CHP boiler is combined with heat storage, it can be used according to the electricity demand, without losing a lot of its efficiency. FlexibilityThe peak demand for electricity defines the installed power generation capacity. A smart grid can bring flexibility by monitoring and controlling the grid and can be used to control the the peak load during the day. In this way, the need for investment in the grid decreases. The smartness of a smart grid is not only defined by the grid itself, but also by its users. Users must apply the smart abilities to experience the advantages of the smart grid. To what extent it is possible to incentivize customers was topic of debate. Without innovative approaches to persuade customers, doubts about the effectiveness of the smart grid were expressed by the attendants.

Comparing costs Currently there is a lot of discussion on whether new to be built urban districts should be heated by gas or electricity. When heated by electricity, these districts could be built without a gas infrastructure. Test-case districts without gas have difficulties with the high electricity load, although the success was said to depend on the local setting. This suggests that the necessary investment costs in the electricity grid would be higher than the investment costs of both an electricity and a gas grid. A large chunk of the investment costs comes from trenching when installing the infrastructure. If the gas and electricity network are laid at the same time, the additional costs for a gas pipeline are low while flexibility increased and future options are left open. As a consequence, heating households by burning gas locally while generating electricity could indeed be less expensive for end consumers than only using electricity. This is even the case when only local network investments are taken into account, instead of also taking into account the potential savings in grid expansion and central reserve generating power.

Fuel cell technologyIt was brought forward that it could be even more interesting when a micro-CHP is used based on a fuel cell. Fuel cell micro-CHP is a tech-nology that is currently being developed. A micro-CHP with a fuel cell generates more electricity than heat, which is useful in future houses, where electricity demand will exceed heat demand. Current mCHP technology, based on a Stirling-engine, generates mostly heat and only a little electricity.

Smart usersAs discussed, a smart grid is not only about the technology, but also about how it is used. A question is if the development is pushed by technology or demanded by the market. Households are expected to demand an increasing amount of control over their own energy use, meaning that they want to learn what they consume and produce and how they can influence that. They demand the intelligence and flexibility that a smart grid can deliver. However this may only apply to a small part of the market, whereas a larger part might see the smart grid and a smart meter as a way to increase energy prices and to harm privacy by collecting personal data. It is expected that the interest for the possibilities of a smart grid will only increase as the energy prices rise significantly. FeedbackOne successful result that has been obtained from smart grid test-cases, is using the concept of feedback. This concept means that consumers receive the results of their energy consumption and respond to this. In these tests the most comprehensive feedback methods resulted in a decrease of energy consumption of about 14%. To support the balancing capacity of a smart grid some smart domestic appliances can automatically change their behavior according to information sent by the smart grid. ResponsibilityWho will be responsible for the introduction of the smart grids is still debated. A top-down strategy where the European or Dutch govern-ment defines the standards and the pace at which smart grids are set up is an option. The other way is a bottom-up strategy, where market play-ers start their own initiatives, without waiting for centralised guidance. There are examples of successes and failures of both strategies. Determi-ning what would be the best option depends of course on the view of the role of the government. Possibly an intermediate form would be the best option, where a high-level standard is set by the government and where market players can determine their own detailed version of the standard. In this way both compatibility between all the players and freedom to market players to apply their own preferences are secured. Discussions on the definition of smart grid standards are currently held between market players and the government, but the time frame is un-clear. Partly this is a result of the fact that it is not clear what is required from a privacy perspective.

Gas must actIt was brought forward that the gas market players have to act rapidly in order to secure their role in the development of the future smart grids, because currently they are not involved in plans concerning the smart grid development. By seeking a high profile in the smart grid debate gas could also establish a better position as transition fuel.

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In the first Quarterly of this year (2010) we published an article called “Brussels is not running out of steam”, discussing the recent political and legislative activities in the European energy sector. At the end of the year we can safely state that this dynamic has not changed. In fact, the latest EU energy related Regulation: The Regulation concerning measures to safeguard security of gas supply (Regulation on Security of Supply) was published in the Official Journal of the European Union on 12 November and will thus enter into force before the end of this year. Surprisingly, this Regulation on Security of Supply did not start out as a Proposal for a Regulation. At the very beginning of the legislative process a Proposal for a new Directive was made by the European Commission to supersede the old Security of Supply Directive of 2004. Only at a later stage was this Directive Proposal changed to the Proposal for a Regulation on Security of Supply.

Regulations and Directives are the two main legislative instruments of general applicability available to the European Institutions. Their most important differentiating characteristic is the direct effect of Regulations. Once adopted by the EU Institutions, Regulations are directly applicable to and in all Member States in the same way as their own national laws.1 Directives, on the other hand, are binding as to the result to be achieved, upon the Member States to which they are addressed (and not directly to the natural or corporate citizens of these Member States). The choice of form and methods of implementation of the rules provided for by Directives is left to the Member States themselves.

Preferences for legislating via Regulations or Directives vary per sector, period, topic, political considerations, etc. In the energy sector, since the beginning of legislative activity in the 1950’s until 2009, 72% more Regulations than Directives have been adopted (see Figure 1). During this time period, there have been no major fluctuations between the number of Regulations and Directives. Evidently, there have been ups and downs in legislative activity in general and a temporary prevalence of newly introduced Directives over Regulations (and vice versa) in particular, but it was only in 2009 that the European energy policy domain witnessed a very distinctive peak of new Regulations. During this one year, 17 new Regulations were introduced. By comparison, only 16 Regulations in total were introduced in the ten years prior to 2009.

Figure 1: The introduction Regulations and Directives in the energy domain since 1958

Keeping in mind that not all legal instruments are equally important, we now take a closer look at the particular Energy Regulations adopted in 2009. Nine of these Regulations deal with ecodesign requirements for non-directional household lamps, electric motors, etc. Three Regulations are concerned with maximum residue levels in or on certain products and one Regulation deals with the labelling of tyres.

The remaining four Regulations are of particular interest in the current context. Three of them are part of the Third Energy Package: Regulation 715/2009 on ‘conditions for access to the natural gas transmission networks’; Regulation 714/2009 on the ‘conditions for access to the network for cross-border exchanges in electricity’ and Regulation 713/2009 establishing an ‘Agency for the Cooperation of Energy Regulators’. The fourth Regulation (663/2009) establishes ‘a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy’. These four Regulations contain no less than 122 articles combined, evidencing that the 2009 increase in energy Regulations is highly significant, not only in terms of the number of documents, but also on substantive grounds. Furthermore, the large number of new Regulations was not matched by a similar increase in the number of Directives. Thus, the observation that 2009 witnessed unprecedented legislative activity, marked by a dominating number of newly introduced energy Regulations, appears to be supported by the actual content of the Regulations involved. Does this indicate the beginning of a new trend in EU energy policy, with a stronger emphasis on legislating via Regulations?

In order to answer this question, we first need to determine whether there is a similar legislative phenomenon taking place in the overall legislative activities of the EU. To this end, we take a closer look at the legislative dynamics from the past two decades, as we believe that this sample period is sufficiently long to identify any general legislative trends that can be compared to dynamics in the energy domain. Figure 2 below provides an overview of all newly introduced EU Regulations and Directives for the period 1990-2009. This figure clearly demonstrates that the overall dynamics of EU legislation are

The 2009 EU Energy Regulations: A Surprising Pattern of Recent EU Legislation

Ivelina BonevaEnergy Delta Institute

Wesley KaufmannUniversity of Antwerp

1 EU legislation, including Regulations, actually takes priority over national law.

Taking an example outside of the energy domain, Commission Regulation 128/96 is concerned with ‘the opening of a standing invitation to tender for 11000 tonnes of barley held by the Austrian intervention agency for processing in Sardinia’. As a result, the correlation between the amount of legal documents and their actual importance may not be as straightforward as the figures provided would indicate.Put differently, a case could be made a priori that the 17 energy Regulations from 2009 might be substantial in size, but not in impact.

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very different from those characterizing the energy domain specifically. First, and foremost, the total number of new Regulations has actually decreased over time, contrary to our findings for the energy domain. Second, the amount of new Directives has remained more or less constant in the EU sample, with a clear increase in the number of newly introduced Directives from 2007 onward. Recall from Figure 1 that the number of Directives in the energy policy domain has remained more or less constant throughout the entire sample period and that there have been no outstanding peaks.

proportion of Directives vis-à-vis Regulations, with a particularly high peak in 2009. This finding is in clear contrast with the predominance of Regulations in the energy domain in general, and the 2009 energy Regulations peak in particular.

Competition

The competition policy domain is strongly dominated by Regulations: 97 Regulations have been adopted between 1990 and 2009, compared to just 17 Directives. Particularly high legislative peaks took place in the period 2004 - 2006: 23 different Regulations were introduced, 12 of which made (minor) amendments to existing Regulations. The remaining 11 Regulations introduced a significant amount of rules into the competition policy domain, either as standalone Regulations, or by implementing previously adopted Regulations. In total, 162 “new” articles were introduced in this way, the most notable example being the articles contained in the EC Merger Regulation of 20 January 2004.2

Figure 4: The introdution of Regulations and Directives in the EU competition policy domain

At first glance, it seems that the significant increase in the number of Regulations in the energy domain is comparable to the situation in the competition domain. However, in contrast with the energy domain, the predominance of Regulations has been a very stable characteristic of the competition domain. Moreover, even though both policy areas reveal many similarities and interrelations, there is a notable differentiating factor, namely the competence of the EU to legislate in each of them. While for the competition domain, the EU has an exclusive competence to legislate, the EU and its Member States have shared competences over the energy sector. This difference in competence allocation is naturally reflected in the choice of one legislative instrument over the other. Thus, the existence of an additional factor influencing the competition domain makes it harder to draw conclusions about eventual trends, their comparability and driving forces, common to both policy areas.

Figure 2: The introduction of Regulations and Directives in all EU policy domains

We have now established that the number of new Regulations in the energy domain has peaked in 2009 in dissonance with the legislative dynamics pattern for the EU as a whole. This provides further support for our observation that the 2009 peak of energy Regulations is a unique legislative event. It should be noted, however, that EU legislation is not a monolith. The substantial difference between the legislative dynamics of the energy policy domain and the EU as a whole could be due to the fact that certain policy domains (e.g. agriculture) are distinctly different from the energy domain. In order to further explore this possibility we take a closer look at the legislative dynamics in three policy domains related in one way or another to the energy domain: transport, competition and environment.

Transport

Figure 3 The introdution of Regulations and Directives in the EU transport policy domain

As illustrated by Figure 3, we do not find common legislative tendencies between the energy and the transport domains. Actually, opposite trends are observed: The transport policy domain is characterized by a larger

The transport domain was chosen because of the similarities between the energy and the transport sector. They are both network industries undergoing a reform, begun by the EU in the 90’s. Actually for the period 2000 – 2010 the activities related to both policy domains had been merged in one Directorate General (DG TREN) of the EU Commission. 2 EU legislation, including Regulations, actually takes priority over national

law.

EU’s energy policy, one of the major pillars of which is the liberalization and the creation of an internal energy market, has been strongly related to the field of Competition Law. In the context of the creation of an internal market, the competition field Regulations and Directives set the horizontal (intersectoral) requirements and the energy market is vertically (sector specifically) regulated by the energy Regulations and Directives.

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Environment

In contrast with the other domains that we have looked at so far, the environmental policy domain is characterized by a consistently balanced Regulation-Directive distribution. The environmental policy domain has witnessed a distinctive peak of new Regulations in the years 2007 and 2008 (21 and 29, respectively), which coincides with a sharp decline in the number of Directives.

Figure 5: The introdution of Regulations and Directives in the EU environmental policy domain

This situation appears to be comparable to the one in the energy sector. In both domains we find a sharp increase in the number of Regulations in recent years. This resemblance is also reflected size wise. During the peak period of new environmental Regulations (the year 2008), for example, 260 articles were introduced into the environmental policy domain. Moreover, the environmental and the energy policy domain are both a shared legislative responsibility between the EU and the Member States. This eliminates the complicating factor we encountered when attempting to compare the energy domain to the competition domain. Put differently, given the resemblance between the EU energy and environmental domains in terms of shared legislative responsibility, the similarity in legislative dynamics for these domains appears to be significant.

To summarize our findings, we believe that the significant 2009 increase in energy Regulations is not matched by overall EU dynamics, nor by policy output patterns in the transport and competition domains. The environmental domain, however, shows a legislative pattern that, at least to some extent, is comparable to that of the energy domain. Overall, the recent boost of energy Regulations appears unmistakable and not characteristic of EU legislative dynamics in general. The question is, then: Why has the EU decided to give such an outspoken emphasis to legislating via Regulations in the energy domain?

As mentioned above, Regulations are more invasive legislative acts in general. While Directives leave flexibility to the Member States to decide upon the choice of form and methods for achieving the results envisaged in the Directive, Regulations need to be very specific in order to enable a single set of detailed rules to apply directly in all the Member States. Thus, by leaving less latitude for implementation of the new rules to Member States (as compared to Directives), Regulations ensure a higher degree of harmonization of national laws and uniformity across the EU. This explains why Regulations are a preferred way of legislating in the areas of exclusive competence of the EU, such as the competition policy area. As a result, a switch in the preference

for a legislative instrument (in this case, Regulations preferred over Directives) might be an indication of political tendencies and ambitions for expanding EU’s involvement in a policy area going above and beyond what can be observed on the surface. Such an argument of “creeping European influence” is, of course, just one of the possible hypotheses, but it is indeed an intriguing one.Returning to the example from our introduction, the EU Commission’s argumentation to change the Proposal for Introduction of Rules on Security of Supply from a Directive to a Regulation was the need for a precise definition of the situation of an emergency, the automatic response mechanism, the preventive measures, standards that the market should be able to cope with and precise procedure for an automatic response mechanism. The industry, by contrast, was in favour of the legal form of a Directive, which would leave more flexibility to the Member States and allow them to adjust the new rules to their particular geographic, climatologic and market characteristics. The Commission prevailed, however, and although there are still elements to be decided on by the Member States, which are normally characteristic to Directives, the Security of Supply Regulation has been adopted and will be applicable before the end of the year.

This leads us to another important feature of Regulations: legislating via Regulations instead of Directives enables a significant speed-up of the implementation process. For one, Member States do not have to pass laws transposing the requirements of Regulations. Moreover, the new Regulation has priority over any contradicting national legislation, so even eventual activities related to adaptations in the current legislation do not entail delays in the application of the Regulation. This “practicality” could well have played a role in the decision-making for the adoption of new rules on the security of supply in the aftermath of the Russian-Ukrainian crisis of January 2009. 3

The observations in this article certainly raise more questions than they answer: Are the EU Institutions striving for ever increasing influence in the shaping of the European energy sector? Is the role of the Member States steadily diminishing and, if so, can we even group all Member States together or should we discuss the positions of France, Germany, the Netherlands, etc. separately? Where does the industry stand in all of this and, again, should we look at the European industry, or the French, German, Dutch, etc. industries? Are the energy and environmental policies going to be ever more interrelated and dominated by similar trends?

In search for the answers, it will be particularly interesting to examine the legislative developments in the energy domain during the coming years, and to also keep a close eye on the environmental domain that seems to be displaying comparable dynamics.

Method of constructing the presented information:The advanced search option in the EUR-Lex database was used to construct a search statement that provided us with the exact number of introduced Regulations (or Directives, depending on the search criteria) for each of the relevant domains, as well as overall EU policy output.4 Proposals and drafts were excluded, leaving us with a ‘clean’ sample of Regulations and Directives.

The environmental policy of the European Union is strongly related to its energy policy domain. Policy goals, targets and the legislative acts incorporating them from both domains inevitably influence each other.

3 The 2009 crisis was the latest of a series of disputes ultimately endangering the security of energy supply in Europe and intensifying the necessity of measures to be taken.

4 Note that this sample also includes Regulations and Directives that may no longer be in force today.

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Nabucco: European competition from within.

Florent Parmentier1Institut d’études politiques de Paris

Adina Crisan-RevolInstitut d’études politiques de Paris

Most of the literature on the Nabucco pipeline focuses on its rivalry with South Stream2, an ambitious project launched by Gazprom and Eni. In this perspective, the dominant approach in European energy politics is what can be termed a “pipeline war” paradigm, where security of supply is the key concept. Long denied, the competition between the two projects is now even openly acknowledged by European Energy Commissioner Gunther Oettinger: “South Stream is likely to compete with Nabucco in the long run”3. Yet, without denying that Nabucco had the support of the EU institutions, and embodies a specific European discourse, it should be mentioned that Nabucco has its own European rivals. We argue that the other European projects indeed have relevance in the current geo-economic developments, and help understand the nature of European energy politics.Our belief is that the relevant levels of analysis include states (EU Member States, transit states and producer states), EU institutions and energy majors. Several EU Member States have set becoming an energy hub as their objective, and have therefore been interested in proposing new projects. Energy majors sometimes act without official state support, but states may help in easing and guaranteeing agreements.

Why Nabucco embodies a specific European political discourse

When Nabucco was launched in 2002, its main goal was to export Iranian gas to European markets. Yet, with the stalemate in EU-Iran relations, the Nabucco project has been increasingly politicized as it is said to ‘decrease energy dependency’, i.e. diminish imports from Russia.This reaction against Russia can be explained by an internal factor, since Central European countries are highly dependent on Russia for their energy supplies and eager to find new suppliers. Some factors are more externally driven: domestic debates on Russia’s “energy superpower”4 position and the come-back of ‘resource nationalism’ have scared foreign investors and consumers.

The two major crises between Ukraine and Russia in 2006 and 2009 have led the EU to take into account energy security as a central focus of its policy5. While energy security was forgotten in the European Security Strategy (2003), it has been included in a revision of 2008, with an emphasis on the diversification strategy. Javier Solana, then EU High Representative for Foreign Common and Security Policy, put it in the following way: “we can and should be more serious in our diversification strategy. This means making sure that Nabucco actually happens.”6

Nabucco is a central component of the so-called Southern Corridor Project linking the Caucasus region and the Middle-East to the EU. The Southern Corridor Project, portrayed as a ‘new silk road’, has set as objectives to prevent gas shortages and decrease dependency on Russian energy. EC spokeswoman, Nicole Bockstaller declared: “As you know, the development of the Southern Corridor remains a Commission priority because we can diversify our gas supply”. More explicitly, “The aim is to create a direct link with the largest deposits of gas in the world. We are supporting several pipelines in the Southern Corridor, and Nabucco is the main project in the region.”7 Nabucco has benefited from the political support of the EU institutions, as several summits for Nabucco have reunited key actors in the process. Nabucco has received the status of trans-European gas pipeline, while Russian authorities are still struggling to reach a similar status for South Stream (as it was previously done with Nord Stream).

European institutions insist on diversification (of resources, routes and suppliers) rather than the establishment of contractual relations (between energy majors and EU states) in order to guarantee the European security of supply. Member-States are divided about this preference, as Germany and Italy, the two major gas consumers in the EU, prefer to develop strong bilateral ties directly with Gazprom. Interestingly, while Nabucco is seen as an attempt to diversify from Russian gas imports, some European gas pipeline projects share a similar objective, but they may put the realization of Nabucco at risk.

1 Adina Crisan-Revol is a Ph.D candidate and a lecturer at Sciences Po (Paris). Florent Parmentier, Ph.D, is energy program director of the Public Affairs Department at Sciences Po (Paris).

2 Nabucco will run from Eastern Turkey to the Baumgarten gas hub in Austria via Bulgaria, Romania and Hungary, bringing natural gas from the Caspian region and the Middle East to Europe. South Stream is a joint project between Gazprom and Eni, which is expected to run under the Black Sea to the Balkans, where it would branch out into two segments (one is expected to run southwest to Italy and the other northwest to Austria). For an introduction, see: Adina Crisan, ‘La sécurité d’approvisionnement gazier de l’UE dans la region de la Mer Noire. Quelles prespectives pour la Roumanie ?’, Brussels, Europuls, 1st June 2010.

3 “EU: South Stream, Nabucco are competitors”, UPI, 22 November 2010, http://www.upi.com/Science_News/Resource-Wars/2010/11/22/EU-South-Stream-Nabucco-are-competitors/UPI-97301290461570/

4 Florent Parmentier, “What is Russian “energy imperialism?” Russia between new assertiveness and renegotiation of its international status”, Zoom – Revista do Centro de Estudos do Curso de Relaçoes

5 In the European Security Strategy of 2003, the question of energy security is not seen as a major threat for the EU. The actualization of the document, published in 2008, has included this development.

6 Speech by Javier Solana, “The External Energy Policy of the European Union”, 1st February 2008, http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/discours/98532.pdf

7 Klara Jiricna, “Energy: The Troubles of Nabucco”, The Prague Post, 1st December 2010, http://www.praguepost.com/business/6610-energy-the-troubles-of-nabucco.html

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The emergence of European competitors

South Stream is considered a major impediment for the realization of Nabucco, as it targets Turkmenistan and Azerbaijan’s resources, which are key sources of gas for Nabucco in a situation of non-availability of Iranian gas, and tries to attract European consumers. Beyond South Stream, Nabucco faces many other European competitors, three among which have reached some credibility: White Stream, ITGI and AGRI.

• White Stream: proposed in 2005 by a consortium based in London, White Stream is, just like Nabucco, a European priority project, allowing both the diversification of routes and of supply sources. The pipeline would carry between 8 and 32 bcm of gas from Azerbaijan, Kazakhstan and Turkmenistan on a road from Tbilisi to Supsa in Georgia to Constanta in Romania, either directly or through the Crimean Peninsula. If the latter option is chosen, White Stream would have to cross Russian territorial waters, which would likely complicate matters despite the lower costs of such a route avoiding some instable regions of Turkey.

• ITGI: the Interconnector Turkey-Greece-Italy (ITGI) is a scheme for taking gas from Azerbaijan’s offshore deposit into southern and southeastern Europe (10 bcm). Its Interconnector Turkey-Greece (ITG) section was commissioned in 2007, but the Interconnector Greece-Italy (IGI) section remains on hold with no clear date for construction to begin. The ITGI pipeline will require the construction of the 800 km Interconnection Greece – Italy (IGI).

• AGRI: the project proposes to link two offshore LNG terminals and CNG, one built on the coast of Georgia and one in Constanta (Romania), where SOCAR, the Azeri company, has bought an oil terminal. An agreement has already been signed between Azerbaijan, Georgia and Romania, the latter being the leader of the project initiated in April 2010. Bucharest plays a key role as it is determined to ensure its Black Sea energy security role. It can provide a solution if Nabucco is not realized, bypassing Ukraine and Turkey, while offering the possibility for Romania to become a regional energy hub. However, the AGRI project is still in its early developments, as the feasibility study is still expected. If the estimated construction costs for two AGRI LNG terminals ranged between €2 and €4 billion, this would place them at lower values than those for Nabucco or White Stream. However, at a distance of 900 kilometers, pipeline gas is still much cheaper. According to experts, for an LNG option to be cost-effective, the transport distance should be at least 2000 to 5000 km, depending on the conditions.

Overall, Nabucco benefits from much more EU official support than any of the three projects described above, although they share the same rationale (bringing gas from the Caucasus and the Middle-East to European consumers). In any case, Azerbaijan is a central player among producers, since all projects involve the Shah Deniz gas field. The transit countries may change, as ITGI includes Turkey, a pivotal country involved both in Nabucco and South Stream, in contrast to White Stream or AGRI. The end consumers are also very similar. Yet, we should estimate to what extent these projects are in competition: if they share the same goal (EU diversification), they might as well become complementary.

Types of competition

Is competition between projects necessarily a bad thing? The answer will slightly diverge among actors, it can be interpreted in two ways: on the one hand, a free-market paradigm would suggest that competition between projects will help make the best choice; on the other hand, others argue that the gas market, because it is regionalized, dependent on public investments and contracted for years, is highly geopolitical by nature.In fact, it is often not clear what shall be understood by “energy competition”. Instead of arguing about the competition between projects, we should specify the types of competition. Three main types of competition, with different implications, should be distinguished:1. Competition on resources: this is the most contentious issue. The

geopolitical approach is generally dominating, as the scarcity of energy resources and their strategic significance led States to intervene in this domain. Both States and companies are involved in this field, with the former having both financial and political leverage to make decisions. For the Nabucco project, it is still uncertain whether or not there will be enough gas to fill the future pipeline.

2. Competition on routes: pipelines involve State intervention, as they should allow transportation through their territory and determine the level of transit fees. If it implies political decision, the competition focuses on which route is the least expensive and which one is closer to the final consumer. Yet, EU Member-States and transit states are crucial players in this field, as they generally try to position themselves as ‘regional hubs’, in order to maximize their geo-economic position.

3. Competition on markets: competition on the market to attract consumers is overall a decision based on economic rationality, which could not always be implemented without regulation. For the last two decades, the European Commission, together with the Member States, has fostered liberalization, by deciding to open the energy markets (oil, gas and electricity) to competition gradually (by distinguishing clearly between competitive and non-competitive parts of the industry, free up the supply side of the market, etc.).

The analysis of the types of competition helps to understand success potential for a project like Nabucco. The EU institutions are generally focused on market competition, but much less on resources and route issues. They are more at ease with a normative equation (e.g. the Caspian Development Corporation) than with geopolitical thinking. In fact, the ability of EU officials to deal with Turkmen and Uzbek leaders has not been proven yet: if these countries have an important potential, the political risks and infrastructural constraints are high. Establishing the conditions for the development of a new supply architecture, as well as a framework for the purchase of Central Asian gas (through the convergence of energy markets), while creating the commercial conditions for greater up- and mid-stream investments are definitely difficult tasks8.

The feasibility of Nabucco relies on the availability of Central Asian resources, which were, so far, canalized essentially through the Russian transportation system. If Russia is seen as a strategic competitor to the European project Nabucco, targeting the same resources as the EU, it is definitely not the only power that looms over Central Asian resources. Turkmenistan now sells gas to China (10-12 bcm) via the world’s largest pipeline (40 bcm). The Turkmenistan-Afghanistan-Pakistan-India project (TAPI) is well-advanced, with an expected capacity of 31 bcm, a size very similar to Nabucco.

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Conclusion. Competition and relevance of Nabucco

In a nutshell, Nabucco is competes not only with South Stream, but with other European projects as well for resources, routes and markets: White Stream, ITGI and AGRI. This fact shows the importance of companies, EU Member-States and Third States in this polycentric field, as EU institutions still only have limited leverage on these issues.The multiplication of gas infrastructure projects may lead to the following dilemma: should the EU realise the construction of Nabucco at any cost, or should the EU focus on ensuring gas supply? The construction of Nabucco has become increasingly politicized over time and the same is true for South Stream. The specificities of the Nabucco project – a consumer rather than a producer pipeline, the soar of shale gas and the search for resources show the challenges that Nabucco is going to face. Yet, several developments have led to the decrease of the Russian share in the overall EU consumption, without Nabucco. The final issue lies in the relevance of the Southern Corridor itself, which may be less important than internal developments.

According to gas specialist Pierre Noël, “The way to diversify gas supply in Russia-dependent Europe is not by subsidizing highly speculative pipeline projects that could bring non-Russian gas to the EU in 15 years time. The EU needs a single gas market that would allow non-Russian gas reaching the EU in Western Europe to be commercialized in Russia-dependent countries, using both long-term contracts and short-term transactions.”9 Yet, the analysis of internal energy policy has probably been less influential until now than the international energy politics approach among policy-makers, revealing the (geo)politicized nature of Nabucco.

8 See Michael Denison, “The EU and Central Asia: Commercialising the Energy Relationship”, EUCAM Working Paper 02, July 2009. http://www.eucentralasia.eu/fileadmin/user_upload/PDF/Working_Papers/WP2_e-EN.pdf

9 Pierre Noël, “European Security after the Crisis”, University of Cambridge – Electricity Policy Research Group, 23 April 2009, http://www.eprg.group.cam.ac.uk/wp-content/uploads/2009/04/pn_eugassecurityafterthecrisis_090423.pdf

Books, reports and conferences

Paul Stevens, September 2010 (Chatham House). The ‘Shale Gas Revolution’: Hype and Reality.

The ‘shale gas revolution’ - responsible for a 20-fold increase in unconventional gas production in the US over the last decade - is creating huge investor uncertainties for international gas markets and renewables and could result in serious gas shortages in 10 years time, says a new report, The ‘Shale Gas Revolution’: Hype and Reality.

The report casts serious doubt over industry confidence in the ‘revolution’, questioning whether it can spread beyond the US, or indeed be maintained within it, as environmental concerns, high depletion rates and the fear that US circumstances may be impossible to replicate elsewhere, come to the fore.

If the revolution continues in the US and extends to the rest of the world, energy consumers can anticipate a future dominated by cheap gas. However, if the current hype about shale gas proves an illusion, the world will face serious gas shortages, as investment in future supplies are hit by the current uncertainty.

From this uncertainty two major problems arise: Investor uncertainty will reduce investment in future gas supplies to lower levels than would have happened had the ‘shale gas revolution’ not hit the headlines. While the markets will eventually solve this problem, rising gas demand and the long lead times on most gas projects are likely to inflict high prices on consumers in the medium term.

The uncertainties created by the ‘shale gas revolution’ are also likely to compound existing investor uncertainty in renewables for power generation in the aftermath of Copenhagen. In a world where there is the serious possibility of cheap, relatively clean gas, who will commit large sums of money to expensive technologies to lower carbon emissions?

This paper is available at: http://www.chathamhouse.org.uk/files/17317_r_0910stevens.pdf

Ruud Egging, Franziska Holz and Steven A. Gabriel, October 2010 (Energy Journal). The World Gas Model: A multi-period mixed complementarity model for the global natural gas market.

The authors of the article provide the description, mathematical formulation and illustrative results of the world as a model, a multi-period complementarity model for the global natural gas market with explicit consideration of market power in the upstream market. Market players include producers, traders, pipeline and storage operators, LNG (liquefied natural gas) liquefiers and regasifiers as well as marketers. The model data set contains more than 80 countries and regions and covers 98% of world wide natural gas production and consumption. The authors also include a detailed representation of cross-border natural gas pipelines and constraints imposed by long-term contracts in the LNG market. The model is calibrated to match production and consumption projections from the PRIMES [EC. European energy and transport: trends to 2030–update 2007. Brussels: European Commission; 2008] and POLES models [EC. World energy technology outlook – 2050 (WETO-H2). Brussels: European Commission; 2006] up to 2030. The results of our numerical simulations illustrate how the supply shares of pipeline and LNG in various regions in the world develop very differently over time. LNG will continue to play a major role in the Asian market, also for new importers like China and India. Europe will expand its pipeline import capacities benefiting from its relative proximity to major gas suppliers.

More information about this paper is available at: http://www.sciencedirect.com(doi:10.1016/j.energy.2010.03.053)

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Sofia B.Ramos and Helena Veiga, November 2010 (Energy Economics Journal). Risk factors in oil and gas industry returns: International evidence.

The recent boom in oil prices has attracted many investors to oil companies in search of both returns and diversification benefits. This analysis of the risk factors of investing in the oil and gas industry in 34 countries finds evidence that oil price is a globally priced factor for the oil industry. The oil and gas sector in developed countries responds more strongly to oil price changes than in emerging markets. Oil and gas industry returns also respond asymmetrically to changes in oil prices; oil price rises have a greater impact than oil price drops. There is no parallel to the asymmetry of oil price changes in other industries related to commodities. If there is any asymmetry, it is in the opposite direction from oil. Negative commodity price changes have a greater impact than positive ones. The results seem to indicate that the oil and gas industry is distinguished by a pass-through effect.

More information about this paper is available at: http://www.sciencedirect.com(doi:10.1016/j.eneco.2010.10.005)

Boyan Kavalov, Hrvoje Petric and Evangelos Tzimas, September 2010 (To be published in Energy policy Journal in January). Evolution of the indigenous European oil and gas sources—Recent trends and issues for consideration

This communication reviews the oil and natural gas resources, reserves and proved reserves of the European Union (EU) and the European Economic Area (EEA). Experts may apply different methodologies and classifications to assess hydrocarbon deposits, which makes their coherent and sound evaluation a challenging task. The analysis presented in this paper shows that there is variation in reported estimates for the EU and EEA oil and gas proved reserves, which is however relatively small; and EEA holds very small and continuously

declining shares of world oil and gas proved reserves, about 1.3% and 2.9%, respectively. Nevertheless, conventional reserves and resources and more importantly unconventional gas resources offer a significant potential to increase the European proved reserves. This however requires the proper mapping and assessment of these sources and a rigorous research and development programme for the exploitation of this untapped potential, which could play a significant role in the security of the European energy supply in the years to come.

More information about this paper is available at: http://www.sciencedirect.com(doi:10.1016/j.enpol.2010.09.005)

Dick de Jong, Coby van der Linde and Tom Smeenk, August 2010 (CIEP). The Evolving Role of the LNG in the Gas Market.

This paper examines developments in the global gas market, the main markets for natural gas and the position of LNG in these markets (particularly Europe). Next to this, the paper addresses the question of risks in the LNG business and risk management mechanisms for mitigating short-term supply disruption.

First, this paper looks into general developments in the global supply and demand balance in natural gas, assessing current trends in still regionalised markets in the United Stated, Asia, and Europe. The tendency of governments to enhance state control in the gas industry and the potential of the Gas Exporting Countries Forum for producer countries to coordinate their policies are also examined. Subsequently, the paper focuses on the LNG markets and its share in the international gas trade, giving an overview of the present situation and future challenges.

This article (The evolving role of LNG in the Gas Market) is available at: http://www.clingendael.nl/publications/2010/2010_CIEP_LNG_De%20Jong%20%20Van%20der%20Linde%20and%20Smeenk.pdf

15

EDI Quarterly is published in order to inform our readers not only about what is going on in EDI, but also and in particular to provide information, perspectives and points of view about gas and energy market developments.

Read the latest developments in the energy industry, daily published on the website of EDI.

Editor in ChiefCatrinus J. JepmaScientific director EDIaal

EditorsLeo HoendersMarius PopescuNadezda KogdenkoSteven von EijeIvelina Boneva

EDI Quarterly contact informationEnergy Delta Institute Laan Corpus den Hoorn 300 P.O. Box 11073 9700 CB GRONINGENThe Netherlands T +31 (0)50 5248331 F +31 (0)50 5248301 E quarterly@energydelta.nl

Upcoming conferences

19 – 20 January 2011, Brussels, Belgium 6th Annual EU Energy Law and Policy Conference http://www.claeys-casteels.com/energyconference/

19 – 20 January 2011, Berlin, Germany 4th Annual Gas Transport & Storage Summit http://www.gtsevent.com/index.asp

19 - 20 Januari 2011, Rotterdam, Netherlands Nationaal Gasplatform 2011 http://www.iir.nl/energy/event/nationaal_gasplatform_2011/

25-28 January 2011 - Vienna, AustriaEuropean Gas Conferencehttp://www.theenergyexchange.co.uk/3/13/articles/214.php

26 - 27 January 2011, Barcelona, Spain Global Biofuels Summit 2011 http://www.flemingeurope.com/energy-conferences/europe/global-biofuels-summit-2011?partner=allconferences

31st January & 1st February 2011, Budapest, Hungary5th Annual European Gas Storagehttp://www.platts.com/ConferenceDetail/2011/pc162/index/

31 January – 2 February 2011, Paris, FranceEuropean Unconventional Gas Summithttp://www.theenergyexchange.co.uk/3/13/articles/212.php

1 - 2 Februari 2011, Rotterdam, Netherlands Slimme Energie Infrastructuur http://www.iir.nl/energy/event/slimme_energie_infrastructuur/

2 – 3 February 2011, Barcelona, SpainThe Global LNG Forum 2011

http://www.jacobfleming.com/jacob-fleming-group/conferences/oil-gas/the-global-lng-forum-2011

15 – 16 February 2011, London, UKEuropean Gas Market Summit 2011http://www.eyeforenergy.com/gasmarkets/index.shtml

17 – 18 February 2011, London, UK5th Annual European Carbon Capture and Storage http://www.platts.com/ConferenceDetail/2011/pc165/index

23rd to 24th February 2011, London, United KingdomOil & Gas Pipelineshttp://www.smi-online.co.uk/events/overview.asp?is=5&ref=3489

16th - 17th March 2011, London, United Kingdom Unconventional Gashttp://www.smi-online.co.uk/events/overview.asp?is=5&ref=3441

21-24 March 2011, Amsterdam, The NetherlandsGastechhttp://www.gastech.co.uk/

22—23 March 2011, Rotterdam, NetherlandsBiogashttp://www2.greenpowerconferences.co.uk/EF/?sSubSystem=Prospectus&sEventCode=BS1103NL&sSessionID=c0e1b445a5c542d1f40f1ad4f74b2407-1566241

22 – 24 March 2011, Rotterdam, The NetherlandsWorld Biofuels Marketshttp://www.worldbiofuelsmarkets.com/

22 to 24 March 2011, London, United KingdomThe Future of Utilities featuring The Smart Utility Forumhttp://marketforce.eu.com/Conferences/utilities11?utm_source=conferencealerts.com&utm_medium=CA_ad&utm_campaign=ut11_CA