Need for Long-Term Commitments in Cross-Border Gas Pipeline in Europe

by P. Hébréard

Introduction

Long-term commitments have underpinned the development of gas infrastructures across the globe. Investment in capital intensive projects along the gas value chain (production facilities, LNG liquefaction plants, LNG regasification plants, pipelines or storages) have traditionally been realised thanks to the commitments undertaken by buyers or shippers to pay for the product or service provided over long periods of time, usually for decades.

In Europe, natural gas markets are becoming more and more commoditised with market players focusing more on the short term, thanks to the emergence of liquid gas hubs and the availability of alternative sources of supply such as LNG.

As the need for long-term supply contracts has been and is questioned, the requirement for long-term commitments in gas infrastructure is also being questioned. Are European market players still willing to commit to buy capacity in gas pipelines on a long-term basis? If not, could new cross-border gas pipelines be developed, with the aim to achieve European market integration and to foster diversity and security of supply?

In this paper, we first discuss the economic rationale on which existing cross-border gas pipelines to and within Europe have been developed (part 1). We then analyse if such a rationale still applies to new cross-border pipelines and discuss the factors that could be undermining such a rationale. In doing so, we will make the distinction between potential new import pipelines to Europe (part 2) and potential new interconnections within Europe (part 3).

The paper can be downloaded here Need for Long-Term Commitments in Cross-Border Gas Pipeline in Europe, www.ogel.org/article.asp?key=3852