GRA 5915 The Political Economy of Regulation: EU Competition Policy and Sector Regulation
Guro Refsum Sanden
Why do the EU/EEA states have different preferences in terms of gas market liberalisation?
Liberalisation of the European gas market was governed by the European gas directive of
1998. This directive was the result of nine years with negotiations between member states,
where many opposed to give up on the existing systems (Newbery 1999). With the directive
of 1998 common rules were meant to set a minimum standard of competition at state level,
allowing for the competitive forces of market dynamics. It was also meant to gradually break
down the barriers of cross-border trade and aimed to create a stronger internal as well as
external competitive unified European gas market. Ideally this would imply more efficiency
and a less expensive and more market oriented price to all consumers (Egenhofer and
Gialoglou 2004).
In this essay I will discuss why EU member states have had different preferences when it
comes to liberalisation of the European gas market. Liberalisation in this context will be
understood as putting services of transmission, storage, meter reading, and investment in
pipelines out for competition, and how the balance between regulated natural monopoly and
competitive services can be managed (Newbery 1999: 557). Some of the main issues and
controversies over liberalising the gas market will be described before looking into some of
the member states response to the liberalisation process.
Liberalisation of the European gas market has proven to be a controversial issue. What is
important to have in mind is that most European countries are dependent on importing gas,
and stability in supply has therefore been one of the main concerns for the majority of
member states. Europe is heavily dependent on a small number of oligopolistic gas producers,
mostly from Russia and Algeria, which makes it a more inflexible market and also more
difficult to liberalise than for example the electricity sector. Not only does this lead to a
concern for supply and price stability, it also creates a political risk on the importing
countries. The breakup of former Soviet Union increased the number of transit countries and
1
added a political risk in their dependence on pipeline supplies (Correljé and van der Linde
2006).
Also, gas penetration varies a lot in different European countries, and is highly dependent on
how well placed the country is for import. The import prices will be more or less the same for
countries that are connected to the main European pipelines, but due to differences in the EU
member states’ tax regimes, the final prices will still differ, even in a competitive market
(Newbery 1999.).
The European gas market was traditionally made up by separate national markets with a high
degree of state regulation and oligopolistic sector organization. Liberalisation of the market
challenged the structure of the member states present arrangements, and some outcomes of
the process were more debated than others. The issue of third party access (TPA) to networks
and pipelines, which controlled the flow of natural gas, became one of the main controversies.
Up to the 1992 proposal for a directive on energy liberalisation, the pipeline owners had the
exclusive right to send gas through the transmission lines; the introduction of TPA with the
EU as a regulatory authority was highly controversial (Andersen and Sitter 2006).
Another specific problem has been the EU relationship with supply countries, and the clauses
for long-term gas contracts (Egenhofer and Gialoglou 2004: 41). When negotiating the 1998
directive, the mutual interdependence between exporters and importers where emphasized,
securing long-term investments. Andersen and Sitter (2006) also presents two other
controversies; namely the possibility to impose general public obligations on suppliers over
Europe, especially with concern to nature and environmental protection, and “unbundling”
various functions in the gas market – which means to establish separate markets where there
is a high degree of monopolization.
Traditionally, or at least before the 1980s, the EU member states energy policies have been
rooted in their respective national policies. Andersen (2000) states that the lack of overlapping
interests between EU member states is the main reason why we didn’t see a common EU
policy in the energy sector before the 80s. Andersen also claims that energy did not become
part of the treaty revisions in Maastricht and Amsterdam due to tension between the EU and
the member states interests. It seems clear that energy concerns more generally also is closely
2
linked to foreign policy and in many ways also is a strategic commodity (Andersen 2000: 13).
Correljé and van der Linde (2006) claims that member states divergence when it comes to
strategic thinking combined with the difficulty of the EU to address power questions may be
highly problematic and a potential pitfall for a common EU energy sector. The next paragraph
will therefore have a closer look at the member states different strategies when it comes to
liberalisation of the gas market, in order to explain their different preferences.
Some states, especially the UK and to some extent Spain and the Netherlands, have been in
favour of liberalising the European gas market. The UK’s gas production was limited to
domestic consumption; they wanted a radical EU-reform and they were the first country to
privatise their state gas monopoly (Andersen and Sitter 2006). The Netherlands is the EU’s
major gas producer on the continent, and is therefore the country that might benefit the most
from gas liberalisation. With their large volumes of onshore gas they are able to seek new
markets, and also deliver gas supplies to the continent in emergency situations. However, they
have only been cautiously in favour of liberalisation, but do nevertheless play an important
part in the liberalising process. Unlike the Netherlands, Spain is heavily dependent on
importing gas from unstable external suppliers – but has pursued liberalisation and a
competitive gas market (Newbery 1999). In both Spain and the Netherlands, the respective
governments decided to open up their markets more quickly than the gas directive obliged
them to (Andersen and Sitter 2006: 11-12).
France on the other side has heavily resisted liberalisation and has tried to keep their
traditional energy policy, which again have caused legal proceedings. In Germany the tension
between the energy cartels and the Competition Authority has slowed the progress of
liberalisation, but some degree of competition has been introduced (Newbery 1999).
Basically, we see that many countries have been afraid of liberalisation, while a few have
pursued it. The energy sector, and gas in particular, involves special challenges because of
member states diverging interests. At the same time changes in the energy sector should be
seen together with developments in the international system, both internally and externally.
The EU internal developments include the enlargement towards central Europe, and the new
member states arrangement in energy supply (Correljé and van der Linde 2006). The
international and political aspect of energy policy is also highly present, characterised by
3
strategies and power questions. Russian strategies are perhaps of most interest, as Russia is
challenging the EU’s principles of multilateralism and open markets (Andersen and Sitter
2006: 2). Taking this in consideration it is fair to say that politics still is important in the gas
sector, and that this also affects the member states response to the liberalisation process.
References:
Andersen, Svein S. and Nick Sitter. 2006. The European Union gas market: Differentiated
integration and fuzzy liberalization. [Online]. [Accessed 2009 October 6].
Andersen, Svein S. 2000. “EU Energy Policy: Interest Interaction and Supranational
Authority”. Arena Working Papers [Database Online], 00/5. Available from URL:
<http://www.arena.uio.no/publications>. [Accessed 2009 October 6].
Correljé, Aas and Coby van der Line. 2006. Energy supply and geopolitics: A European
perspective. [Online]. Available from URL:
<http://ideas.repec.org/a/eee/enepol/v34y2006i5p532-543.html>. [Accessed 2009 October 6].
Egenhofer, Christian and Kyriakos Gialoglou. 2004. Rethinking the EU Regulatory Strategy
for the Internal Energy Market. [Online]. Available from URL:
<http://new.ceps.eu/taskforce/rethinking-eu-regulatory-strategy-internal-energy-market>.
[Accessed 2009 October 6].
Newbery, David M. 1999. Privatization, Restructuring, and Regulation of Network Utility.
Cambridge, Mass.: MIT Press.
4