ACER Expects System Operators To Address Bottlenecks In EU Gas Markets

In the wake of the Russian invasion of Ukraine, the changes in supply and demand created gas transportation bottlenecks. With liquified natural gas (LNG) and increased pipeline supplies primarily entering the EU from the west (in a system originally designed for transporting Russian supplies to Europe), bottlenecks in transportation occurred.

Due to physical congestion at LNG terminals and at cross-border pipelines in North-West Europe, the system was used at full capacity and gas could not easily flow to where it was needed most during the 2022 energy crisis, which drove hub price-spreads high. To address these bottlenecks in the short term, the existing infrastructure must be optimised to accommodate new supply routes.

In the gas market crisis, short-term mitigating actions are important. Europe’s voluntary gas-demand reduction target has been extended until 31 March 2024 and storage-filling trajectories for 2023 have been updated. Addressing the most acute bottlenecks presents a no-regret measure to improve market efficiency in the short term.

What action has ACER taken?

In its 10^th Report on Congestion in the EU Gas Markets and How it is Managed, ACER finds a tripling of contractual congestion in 2022.

On top of its regular monitoring, ACER conducted a special study on how physical congestion emerged in the most acutely congested markets of Belgium, France, Germany and the Netherlands, and how the respective transmission system operators (TSOs) and national regulatory authorities (NRAs) addressed the bottlenecks.

What are the key findings?

Congestion emerged following tight market conditions and the need to reroute gas flows away from historic east-west routes to predominantly west-east routes in Europe;
LNG terminals as well as gas flows from Belgium to the Netherlands, from Belgium to Germany and from France to Germany suffered from physical bottlenecks;
Congestion revenues collected by TSOs rose sharply from €55 million in 2021 to around €3.4 billion in 2022; and
Coordination between TSOs weakened while maximising the availability of firm and interruptible capacities at either side of the respective borders between Belgium, France, Germany and the Netherlands, leading to mismatched transmission capacities.

What does ACER recommend?

Ahead of the yearly auction of gas transmission capacities on 4 July 2023, ACER expects:

TSOs to extensively coordinate and jointly maximise the availability of firm and interruptible capacities; and
NRAs to extensively coordinate and remove any regulatory obstacles that prevent an optimal use of the existing network for the restructured supply routes.

Access ACER’s 10th Report on Congestion and its technical annex.