How is the downstream gas market regulated?
Oil & Gas
We refer to our comments on question 15 regarding piped gas distribution, which falls within the jurisdiction of the Brazilian states in their territory.
The downstream market for gas by-products, LPG, GNC, and LNG is regulated by the Gas Law and by the ANP regulations, with the coexistence of multiple suppliers to end users and consumers on a competitive basis.
The marketing of natural gas by traders and gas marketing companies is subject to the ANP authorization.
The Croatian gas market is organized pursuant to the Energy Act, the Regulation of Energy Activities, the Gas Market Act, and secondary legislation arising from the Gas Market Act. Responsibility of gas market stakeholders is established according to the balance group model.
Gas market is characterized by continued market opening and further improvement of existing bylaws.
Considering that the price of gas for household customers is still regulated, the retail gas market for households is hindered, with only limited gas suppliers offering market-based (unregulated) gas supply contracts to households.
The retail market for business customers is liberalized in terms that business customers are entitled to choose their supplier and can freely negotiate the price and other terms of gas supply. Rules set out by the regulator that prescribe mandatory minimal content of the gas supply agreements apply equally to all market participants.
Opening of the retail market business customers caused a number of questions in relation to the permitted market behaviour of the suppliers (complaints concerning the behaviour of market participants, complaints regarding the supplier switching procedure, etc.). Therefore, the work and positioning of the regulator towards such questions and problems is of key importance for future development and functioning of this market segment.
Please see our answer under 16.
The wholesale market is managed by the Energy Market Operator (Gestore dei Mercati Energetici) and exchanges take place on a virtual platform.
Shippers active on the market can purchase natural gas from: private counterparties through exchange platforms; PB-GAS (spot market); or the platform for the balancing out of natural gas.
In order to limit dominant positions, there are maximum market shares. The wholesale market share is limited to a maximum cap of 40% of domestic consumption. If this cap is exceeded, gas release mechanisms are provided for at regulated prices. It is also possible to raise the threshold to 55% if there are undertakings to develop and increase storage capacity by four billion cubic metres over five years.
With regard specifically to retail sales, the ARERA supervises the transparency of contractual conditions and service quality, maintaining also the power to fix the tariffs which retailers must offer on the so-called “protected market”, together with their offers on the “free market” to end-customers defined as vulnerable.
From a federal perspective, the main regulatory regime that applies to these activities are:
- The Hydrocarbons law and its regulations.
- The Law of the National Industrial Safety and Environmental Protection Agency in Hydrocarbon Matters;
- Regulations on activities described in section 3 of the Hydrocarbon Law.
- Administrative provisions in matters related to natural gas activities (open access, services related to pipeline transportation, storage, commercialization).
All downstream activities are supervised by the regulatory entity known as CRE which receives, analyse and issues all permits related to, among other matters: (i) gas processing; (ii) storage; (iii) distribution; (iv) compression and decompression; (v) liquefaction and regasification; (vi) commercialization; and (vii) public sale, of gas.
Each of the activities described before requires a special permit issued by CRE. To obtain such permits, companies must comply with different requirements.
Al permits issued by CRE include the terms and conditions applicable to the activity for which they were issued, including: (i) term and purpose of the permit; (ii) applicable regulation; (iii) description of the authorized services and infrastructure; (iv) corporate information regarding permit holder; and (v) obligations.
As per the Hydrocarbons Law, CRE is entitled to supervise all permitted activities, as well as to impose sanctions and fines in case of any breach to the terms and conditions of the permits.
Day to day activities regarding the gas market, as well as obligations of permitholders involved in such activities are mostly regulated by the administrative provisions issued by CRE which include in detail all regulatory aspects applicable to the market.
From a local and municipal perspective, certain regulations may apply which do not aim to regulate the gas market itself but the infrastructure that companies may develop in specific cities, such as, compression or decompression stations, gas pipelines, among others.
Local and municipal regulation aims to develop the type of infrastructure referred above.
CENAGAS, as mentioned, previously, plays an important role in connection with the Mexican gas market since its main purpose is to guarantee the continuity and safety of natural gas supply which manages most of the natural gas pipelines systems in Mexico.
CENAGAS in addition of being the manager of the natural gas pipeline system, its also a natural gas transporter and therefore it has natural gas transport agreements entered with a vast amount of private entities.
Downstream gas market is regulated by the Law 1-72-255 which set out the terms and conditions under which gas can be imported and distributed.
In this respect, article 1 of the Law 1-72-255 provides that hydrocarbon importation (which includes natural gas importation) is subject to a prior authorization from the authorities.
Also, the Law 1-72-255 regulates the transportation of liquefied gas containers which can only be carried out by filing plant buyers (repreneurs en centre emplisseur) and wholesalers (dépositaires-grossistes).
With respect to services-stations, Law 1-72-255 provides that the opening and operation of services stations is subject to a prior authorization from the authorities.
Law no. 67-15 dated 2 March 2016 has amended the Law 1-72-255 but has not yet entered into force because of the absence of publication of the implementing decrees.
Decree no. 45/2012, of 28 December, defines the Rules on Import, Export, Distribution, Storage and Transport of Petroleum Products and the respective sale prices in the national territory. This Decree provides for the following licences:
a) Production Licence;
b) Storage Licence;
c) Distribution Licence;
d) Retail Licence;
e) Exploration of Oil Pipeline Licence; and
f) Exploration of Unloading Terminal Licence.
The aforementioned licences are generally granted by MIREME; however, licenses for retail activities in a petrol station are granted by the Provincial Directorates (Direcções Provinciais) responsible for energy (except for storage or supply of compressed natural gas or when located within national roads' protection areas, which are within the authority of MIREME) and licences for retail activities in resale stations are granted by the Municipality or District Government in the respective areas of jurisdiction.
An entity may hold more than one of the licenses, as long as that does not condition the development of competitive markets for the petroleum products in accordance with the activities the entity pursues. However, the holder of a distribution license cannot hold a retail license except (i) in the case of liquid gas and compressed natural gas and (ii) for the operation of a sole point of fuel supply for the purposes of training in each of the country’s provinces.
In exceptional cases, MIREME may authorise the distributor to operate more than one point of supply per province.
The production license comprises the categories of large-scale production and small-scale production. The retail license covers the operation of retail activities at fuel supply points and the operation of retail activities at points of resale.
Section 1 (1) of the Petroleum Act provides that the entire ownership and control of all petroleum in, under or upon any land to which this Section applies shall be vested in the State (Federal Government of Nigeria) and by virtue of Section 9 (1)(a) of the Act, the Ministry of Petroleum Resources is vested with the Power to make subsidiary regulations subject to the provisions of the Act.
The National Domestic Gas Supply and Pricing Policy (The Policy) is one of the subsidiary legislations enacted pursuant to the Provisions of the Act. The Policy regulates the downstream gas market. Under the Policy, the Federal Government of Nigeria has grouped the entire domestic demand into three broad groupings. This grouping is in recognition of the fact that, the different demand sectors have different strategic benefits to the country and different pricing considerations. The groupings are:
i. Strategic Domestic Sector: which intent to facilitate and ensure low cost gas access to limited set of sectors, that have a significant direct multiplier effect on the economy.
ii. Strategic Industrial Sector: intent to ensure that feed gas price is affordable and predictable, in order to ensure competitiveness of the products in International Markets.
iii. Commercial Sector: Projects in this group are a potential major direct revenue earner for Nigerian gas due to their capacity to bear high gas prices.
The gas pricing framework proposed in the Policy is a transitional pricing arrangement. The Honourable Minister of Energy (Gas), monitors the environment and determines when the domestic market is fully developed, and an alternative pricing approach is required. It is pertinent to state that the pricing framework does not fix prices. It barely sets out a transparent structure for determining the floor price for dry gas for the categories of demand sectors mentioned above. The floor price is the lowest price that gas can be supplied to a particular category of demand sector. The actual price paid is based on an indexation formula, jointly determined during negotiation between the buyer and seller. In essence, the Market actually determines the price by establishing the indexation mechanism.
Participants in the downstream gas market operate under the following licences granted by the Energy and Water Regulatory Commission: transmission, distribution, storage, operation of LNG terminals, gas exchange operation, public supply, end supply. Gas traders do need to be licensed.
The public supplier (Bulgargaz) sells natural gas to the end suppliers and clients connected to the transmission and/or distribution network at regulated prices. The prices of natural gas sold for technological needs to distribution system operators and the gas storage operator are also regulated. End suppliers sell natural gas to clients connected to the distribution networks at regulated prices too.
Other transactions at the gas market are entered into at free prices. From the beginning of 2020, these transactions when related to short-term standartised products and products for a supply term no longer than one year are will be entered into at a gas exchange market.
The balancing market is based on an entry-exit tariff model and a virtual trading point.
MEMR Regulation No. 6/2016 regarding Provisions and Procedures for Stipulating Natural Gas Allocation, Utilization and Price (“MEMR Reg. 6/2016”) stipulates the order of priority for natural gas allocation and utilization, namely to support the Government’s program to supply natural gas for transportation, households and small-scale customers, increase national oil and gas production, support the fertilizer industry and the natural gas-based industry, the provision of electricity, and to support industries that uses gas as fuel. MEMR Reg. 6/2016 also regulates the buyers for each of these allocations. PSC Contractors must apply to the MEMR through SKK Migas to receive a stipulation for the allocation and utilization of their natural gas. A prospective buyer can apply to the MEMR through the DGOG for the allocation and utilization of natural gas.
The MEMR can allocate gas for export if the domestic needs for gas have been fulfilled, if the local infrastructure is insufficient or if the domestic purchasing power is inadequate for the economics of a field.
Other than the allocation and utilization of natural gas as discussed in Question No. 16 above, PSC Contractors shall submit a gas price proposal to the MEMR through SKK Migas. The PSC Contractor shall also submit an application to the MEMR for the stipulation of gas price within three months prior to the expiration of the relevant gas sales agreement.
The Gas Act 1986 (Gas Act), as amended and supplemented by various legislation, including the Utilities Act 2000 and the Electricity and Gas (Internal Markets) Regulations 2011, among others, establishes the regulatory framework for the downstream gas sector in Great Britain. Northern Ireland has its own separate gas market and regulatory regime. The regime established under the Gas Act is administered and enforced by the Office of Gas and Electricity Markets (Ofgem) – the regulator for the gas and electricity markets.
The regulatory regime under the Gas Act is founded on a licensing system, which provides that certain key activities cannot be undertaken without a licence, or, in some instances, an exemption from the requirement to hold a licence. In GB, it is an offence (punishable by a fine) for a person to engage in the relevant activities without a licence or an exemption (as applicable). The relevant activities are as follows:
- gas distribution and transmission, which require a gas transporter licence. A gas transporter licence authorises the licensee (a gas transporter) to convey gas through pipelines to any premises within an area specified by the licence;
- gas shipping, which requires a gas shipper licence. A gas shipper licence authorises the licensee (a gas shipper) to contract with a gas transporter for gas to be introduced into, conveyed by means of, or taken out of a pipeline system operated by that gas transporter either generally or for purposes connected with the supply of gas to any premises specified in the licence. For example, many gas suppliers hold a gas shipper licence to allow them to arrange for the physical transportation of the gas they buy and sell (unless the gas shipping is carried out by a separate entity);
- the operation of a gas interconnector, which requires an interconnector licence. A gas interconnector licence authorises the licensee to convey gas into, or through, a gas interconnector or to make such an interconnector available for use for the conveyance of gas;
- gas supply, which requires a gas supply licence, and
- the provision of a smart meter communication service, which requires a smart meter communication licence.
Industry codes, which the licensees are required to comply with under the licence conditions, form another layer of regulation. The most important of these is the Uniform Network Code. In accordance with the terms of its gas transporter licence, each gas transporter is required to have in place a network code. A network code is a legal document which forms the basis of the arrangements between a gas transporter and the gas shippers whose gas it transports. Originally, when National Grid Gas owned all the distribution networks as well as the NTS, there was one main Network Code. Now that there are a number of different gas transporters who own the different distribution networks, new arrangements have been put in place by means of the Uniform Network Code (UNC). The way this works is that each individual gas transporter has a network code which, in accordance with the requirements of the gas transporter's licence, incorporates the UNC. The UNC sets out the "business rules" for the use of the NTS, and therefore gas shippers who want to use the NTS to transport gas must accede to the UNC. Gas shippers do this by entering into a framework agreement for the purposes of giving effect to and binding themselves by the UNC. Independent gas transporters are also required by their licence terms to have a network code. The Independent Gas Transporter Uniform Network Code (iGT UNC) performs a similar role to the UNC.
The main piece of legislation regulating Turkey’s downstream gas market is Natural Gas Market Law. The said act includes provisions regarding import, transmission, storage, wholesale, distribution of natural gas and obligations of those companies that are carrying out these activities, pursuant to their licenses, in the downstream market. Energy Market Regulatory Authority is the supervisory authority which is responsible to oversee whether the license holders’ natural gas market activities comply with Natural Gas Market Law.
Import of Natural Gas: Import of natural gas to Turkey is subject to import license. In order to obtain an import license, the entity applying for the license shall have sufficient technical and financial power, provide precise information regarding the sources, reserves, production facilities and transmission system of the natural gas to be imported. Furthermore, relevant guarantees must be secured for underground storage of natural gas for a percentage determined by EMRA. Finally, the applicant shall have the required sufficiency for contributing the development and security of national transmission system. Import companies are required to obtain separate licenses for each import connections that they are going to make. Natural Gas Market Law also puts a ceiling on the amount of the gas which can be imported by a single importer, which is 20% of the consumption of natural gas of that year. Natural Gas Market Law includes an ongoing obligation to notify all the details and documents with respect to all the contracts entered into by the importer company.
Transmission: Transmission of natural gas is another market activity requiring a license in the downstream gas market. Under NGMA, companies holding a transmission license are subject to certain obligations. In this vein, when a system user applies to the transmission company for connecting to the transmission system, provided that the system is available, the transmission company is required to connect the applicant to the most appropriate grid within 12 months. If the transmission company rejects this request, the applicant may inform EMRA which will examine whether the rejection was legitimate. Transmission companies are also under an ongoing obligation to provide all technical information which can be requested by EMRA. Transmission companies are obliged to take all measures to provide that the gas is transferred in a safe and efficient manner.
Storage: Only companies holding a license enabling them to store natural gas are allowed to do so. License applicants must have the required technical and financial sufficiency for natural gas storage, they must undertake that they are going to operate all of their storage capacity in a manner which is fostering co-operative and safe operation of the entire system and they must also undertake that they are going to provide their services impartially and equally provided that their storage capacities are available. Similar to transmission companies, when a request made to a storage company is rejected, EMRA has the authority to adjudicate whether the rejection was lawful.
Wholesale: Wholesale of natural gas refers to selling of natural gas to distribution companies and to eligible consumers. This is also a natural gas market activity requiring a license. However, import companies are allowed to conduct wholesale activities without being required to obtain a separate wholesale license. On the other hand, a wholesale license does not give an automatic right to import natural gas. Companies conducting wholesale activities are required to ensure sufficient gas storage facilities to ensure sustainability of gas supply. To that end, they are required to disclose their lease agreements with storage companies to EMRA. According to Natural Gas Market Law, contract price regarding the supply of natural gas can be determined freely. Information which is deemed as commercial secret (including contract prices) cannot be disclosed to third persons other than EMRA.
Export: Similar to other market activities, export of natural gas is also subject to a license. The applicants must have sufficient technical and financial sufficiency, must inform where and how it is going to export natural gas and guarantee that export of natural gas is not going to be detrimental for Turkey’s need of natural gas and endanger the system security. Applicants are also required to take out insurances covering the abovementioned risks.
Distribution: Distribution licenses are granted to the winners of the tenders opened by EMRA for a time period which is to be determined by EMRA. Tenders are announced in the Official Journal in advance. The bids to be made by the participants will be evaluated by the criteria set out in the relevant regulation and the winner will be awarded with the authority to distribute natural gas in the relevant area for which the tender was opened. Similar to other market activities, distribution companies are obliged to connect the consumers residing in their responsibility area to the system as long as the system is available and the consumer fulfils the actions needs to be made on its part for making the connection. When the request is rejected EMRA has the authority to adjudicate whether such rejection was lawful. In addition to this, distribution companies are subject to comply with the detailed requirements of Natural Gas Market Law and its secondary legislation.
The Gas Law, the Natural Gas Sector Law, 5762-2002, and the Natural Gas Sector Regulations 5768-2008, as well as the Gas (Safety and Licensing) Law, 5749-1989, the Gas Order (Safety and Licensing) (Natural Gas Distribution Facility), 5759-1999, and the Planning and Building Regulations (Licensing of Natural Gas Installations), 5764-2003 govern the midstream and downstream activities and sets out a licensing regime for Israeli natural gas infrastructure, including distribution, transmission, storage and LNG facilities.
The Natural Gas Authority in the Ministry of Energy acts by virtue of the Natural Gas Sector Law and promotes the law's goals such as developing the natural gas sector, ensuring regular and reliable supply, encouraging competition, ensuring the maintenance of safety and setting suitable tariffs. The Director of the Natural Gas Authority is appointed by the government, pursuant to a recommendation from the Minister of Energy and in consultation with the Minister of Finance, for a five year term. The Director works in conjunction with the Natural Gas Council, which is comprised of a Chairman, a representative of the Minister of Finance, a representative of the Minister of Energy, and two public representatives. The Council's role is to advise on the tariffs system. The Natural Gas Authority also includes a Supervisor of Safety who works in coordination with the Council and handles the safety of the natural gas economy in accordance with the NG Law and NG Regulations.
The aforementioned bodies work in consultation with the Minister of Energy to advertise tenders, prepare licenses, supervise licenses and tariffs, engage with other authorities when there is intersection with real estate, determine and respond to safety orders, regulations and procedures, oversee gas storage facilities, determine the standards for services, fees, and arrangements with consumers, regulate those companies distributing and selling natural gas, and recommend rates and tariffs to the Council.
The downstream gas market is regulated by the Act on common rules for the internal market in natural gas of 2002 (Natural Gas Act 2002 – NGA 2002). The NGA 2002 is applicable for all activities related to natural gas, unless the Petroleum Act of 1996 applies. For the downstream gas market, the NGA 2002 will serve as the regulatory framework also after the implementation of EU's third internal energy market package, effective from November 1, 2019.
The regulatory regime under the NGA 2002 is based on a system where the Ministry of Petroleum and Energy (MPE) appoints transmission, distribution, storage and LNF operators based on an individual decision. Each undertaking that owns a transmission system shall act as a system operator under the NGA 2002. The MPE may issue regulations regarding access for natural gas enterprises and customers to such systems on objective and non-discriminating terms.
An enterprise that operates or have direct or indirect control over a unit that produce or supply natural gas to the market, may not own or run a transmission system or have any control over or have any rights in an entity that owns a transmission system.
The downstream gas market is regulated by the U.S. federal government. More specifically, the typical agreements present in the downstream market are regulated by the Petroleum Market Practices Act (PMPA). The PMPA is a federal law that governs petroleum supply contracts and protects franchised distributors and retailers of gasoline and diesel motor fuel. More specifically, it establishes minimum federal standards that govern the termination of franchises and the non-renewal of franchise relationships by the franchisor or distributor for gasoline and diesel motor fuel. The natural gas retail market is regulated by the individual states.