European Union regulation of gas transmission services: Challenges in the allocation of network resources through entry/exit schemes

The current definition of “commercial” gas networks in the European Union (EU) is based on entry/exit schemes and balancing mechanisms. This regulation of grid services aims to enhance the liquidity of wholesale markets. In order to facilitate the gas commodity trade among players with different network usage profiles and different network connection points, some network services are socialized across the market zone. That socialization of network services in the EU leaves the task to reconcile physical gas flows and commercial gas flows to a regulated system operator. We show that in practice, it leads, on the one hand, to offer less “commercial” transmission capacity than the physical capacity of the network, and on the other, to the cross-subsidization of line-pack services between high profile and low profile users. The guidelines proposed by the Agency for the Cooperation of Energy Regulators (ACER) for the gas balancing network code do not explicitly address all the drawbacks of existing entry/exit schemes, but they leave room to design mechanisms that increase the efficiency of short-term network allocation. Contributing to this open debate, we point out that improved allocation comes with market mechanisms to allocate short-term network services, instead of relying solely on Transmission System Operators' management of network resources.

► EU gas network regulation has simplified services to promote liquidity.
► But this results in an inefficient allocation of network resources.
► TSO must bridge the gap between physical and contractual flows.
► But they do it without representation of players preferences for flexibility.
►  Increasing needs for flexibility asks for designs that allow revealing preferences.