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European energy liberalisation forbids gas deliveries to the UK!

by Jerome a Paris Tue Apr 18th, 2006 at 09:01:20 AM EST

I've talked to some people directly involved in the gas trading business in Europe, and and a fascinating insight on how these things work, and in particular on why continental European did not deliver gas to the UK a couple of weeks ago when there were shortages and prices jumped fourfold.

I wrote that the UK government's lack of foresight was to blame (EU Energy reform = give Britain access to the continent's cheap spare capacity), but I did not expect that European liberalisation was the actual culprit!

I'll explain below the fold...


Quite simply, the "incumbent" gas companies import most of their gas, under long term contracts with the main suppliers like Russia (pipeline), Algeria (pipeline and LNG) or Norway (pipeline) and a few others (most of them via LNG).

These contracts now usually have clauses that say that if the gas is diverted to another destination (for instance, if a LNG tanker goes to the US instead of going to its European port of destination), then the buyer will share will the seller of the gas some of the profit of that change of destination. Typically, that happens if prices are higher in the US than in Europe.

The problem is that such "destination clauses" (that profit sharing mechanism) have been judged anti-competitive by European competition authorities, and are now forbidden under EU law. So, a contract with Algeria or Russia cannot authorise Algeria or Russia to make a profit if the European buyer of its gas resells that gas in any other EU country - like the UK.

Prevented to impose such profit sharing contractually, Algeria and Russia have made it clear to their clients that they would nevertheless take it very badly if their gas was sold onwards without them having a share of the profit. In one case, a European buyer of Algerian gas that nevertheless diverted LNG cargoes to other European destinations a couple years ago was punished at the expiration of one of its Algerian contracts: it was simply not renewed.

Thus, the European companies, stuck between EU competition rules and prickly suppliers, can divert gas to the USA, but not to the UK...

Oh, and, by the way: the technical parameters for natural gas that are accepted in the UK are not the same as those for gas in continental Europe, so only specific qualities of gas can be accepted in the pipeline between Zeebrugge (Belgium) and Bacton (UK) -and these are not necessarily available when there is an urgent need on the UK side. And few LNG tankers are authorised to dock at UK ports, thus limiting again, for technical reasons, the ability to divert gas to the UK.

But noooo, it's all the fault of evil protectionist Europeans...

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What's that old saying about "the roosters coming home to the roost..."

what a tangled web they weave...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Tue Apr 18th, 2006 at 09:29:59 AM EST
So - is everybody finally sick to death of European energy stories?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Apr 18th, 2006 at 11:16:48 AM EST
Just giggling quietly in a corner I'm afraid. What can one say?
by Colman (colman at eurotrib.com) on Tue Apr 18th, 2006 at 11:18:17 AM EST
[ Parent ]
Well, it was so quiet that I could not hear it ;-)
Giggling is good.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue Apr 18th, 2006 at 11:25:27 AM EST
[ Parent ]
Well, actually, I'd rather see a draft of Energize Europe! <wink></wink>

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Apr 18th, 2006 at 11:24:59 AM EST
[ Parent ]
But this one was really funny. The irony of the situation  is priceless. You can't make this stuff up.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Apr 18th, 2006 at 11:25:37 AM EST
[ Parent ]
Well, the relevant raw material is slowly building up. Soon we'll have a critical mass...

Maybe I'm just worried about having to take a stand on nuclear energy too clearly, and see the debate hijecked by this!


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Apr 18th, 2006 at 11:27:16 AM EST
[ Parent ]
I suspect you'd have the debate hijacked by nuclear energy regardless.

What would be interesting to know is whether the existing commitment to nuclear energy by selected countries would be enough to provide the nuclear slice of the pie.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Apr 18th, 2006 at 11:35:48 AM EST
[ Parent ]
Yeah, that would be interesting. In France, Sweden and Finland the nuclear share will stay the same or increase for quite some time. In Britain (home of all energy woes) it is set to plummet. I guess it will fall in Germany too if Merkel doesn't save it (please!).

Also a lot (half a dozen or so) eastern and central European countries are expanding nuclear energy.

Back on main topic:
Natural gas seems to be such a nuisance. Why not just get rid of it? We use no natural gas in Ultima Thule and everything works perfectly anyways.


Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Apr 18th, 2006 at 01:01:05 PM EST
[ Parent ]
In 1986, or so, I was talking about nuke plants with someone and I remarked it was too bad we couldn't just ship the waste material to the sun.

He looked at me, deadly serious, and said, "But that would make the Sun radioactive."

(I swear to God I'm not making this up!)

T'was then I decided to be a passive observer of the Great Energy Debate.


Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Tue Apr 18th, 2006 at 12:27:09 PM EST
[ Parent ]
please keep driving the energy angle jerome...

till we sort that, it's all just rigmarole and bladibla.

this gas issue is a boondoggle, it just delays (at huge price) the inevitable. (unless humungous pig farms are hooked up to biodigesters.)

hmm, pork, anyone?

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Tue Apr 18th, 2006 at 08:46:44 PM EST


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