Changing EU rules for LNG terminals would lower gas prices: study

Brussels — Introducing primary capacity auctions with low reserve prices at all European LNG import terminals would help improve competition and lower weighted average gas prices, according to an independent study commissioned by the European Commission.

This is one of several recommendations the study makes on how to improve the rules for using LNG terminals, as part of the EC's work to update the EU's gas market rules next year.

Primary capacity auctions for standard products with a low reserve price covering variable costs would provide "robust price signals" to the market, the study written by consultancies Trinomics, REKK and Enquidity found.

This would enable terminal capacity to be used more efficiently and improve competition both upstream and downstream, creating the highest benefits for European consumers out of the measures assessed, the study said.

The impacts of the auctions, and any of the other measures, would depend on global gas supply availability and European gas demand.

They would be particularly positive at the moment, given the current global LNG glut, but most would likely still be beneficial even without the glut, or with stable or falling EU gas demand, the study found.

Introducing such auctions could lead to higher or lower revenues for the terminal operator, depending on the market conditions.

If capacity demand was "structurally low" and auctions did not enable the operator to recover its costs long-term, then authorities should consider other ways, such as taxes or levies, to compensate, the study said.

This could be the case where the terminal capacity was deemed important for supply security or competition.

The study recommended using current and planned practices in Italy and Spain as a reference for such auctions.

More data, booking service

The study recommended setting up an EU-wide information platform to make it easier to compare terminal services, pricing and available capacity.

This would help moves toward market-based capacity allocation mechanisms and more efficient primary and secondary capacity markets.

It also recommended setting up a centralized tool for booking secondary capacity to improve use rates.

LNG terminals currently face different national supervisory principles, and within the same market area terminals with regulated tariffs may also compete with exempted ones.

Exempted terminals' negotiated tariffs did not seem in practice to distort competition, the study said.

It recommended, however, making future exempted terminals share information with the EU-wide information platform to improve how the market works, and ideally apply this to existing exempted terminals where possible.

Europe currently imports LNG through 24 large-scale terminals, and there are plans for 18 more, the study said.

These include new terminals in six countries -- Croatia, Cyprus, Estonia, Germany, Ireland and Latvia -- which do not have any yet.