In a pipeline network owned by multiple pipeline companies and configured with multiple physical hubs, shippers arrange the physical flow of gas across the network including capacity on multiple pipeline systems or swaps with other shippers.

European design

The European Gas Target Model was developed in 2011 as a vision to provide guidance for the development and implementation of EU Network Codes. The European Gas Target Model is with a limited number of liquid hubs in the European Union connected by entry-exit gas transmission systems with a uniform design.

An entry point is a physical point that receives natural gas into the pipeline system from domestic production, cross-border imports, LNG facilities, or storage facilities. An exit point is a physical point, or a cluster of physical points in a general area, that delivers gas out of the system to large consumers, local distribution companies (LDCs), storage facilities, and crossborder exports. Some of these entry and exit points can be bidirectional. Typically, the number of entry points is much fewer than the number of exit points because of the limited sources of supply within European countries.

The transmission system operator (TSO) is the entity that owns and operates the pipeline network that connects these points. Similar to in the United States, TSOs are not allowed to be shippers on their own systems. The TSOs can have private as well as state ownership. A TSO affiliate may use the system provided it complies with the EU unbundling rules, is under separate management from the TSO, and is not involved with the TSO operation and network development.

Physical gas may be shipped anywhere within the TSO’s pipeline network with the purchases of just two capacity contracts (one entry contract purchased by the shipper adding gas and one exit contract purchased by the shipper taking gas from the network) even if the gas is transported across several pipeline segments. Shippers do not have to plan their physical route through the system to get gas from an entry point to an exit point. As an example, a seller can add gas to the system at any entry point and may have an agreement with a buyer to take gas off the system, but the seller does not need to know nor be concerned with which exit point is used by the buyer or how the physical gas is transported between these points.

The TSO is responsible for physically transporting gas across its pipeline network and determining the amount of capacity that can be offered at the entry and exit points. The TSO monitors and optimises the physical gas flow routes and manages incremental capacity development to enable its pipeline network works as a single virtual market hub.

Most European Union member countries have achieved a single TSO and single virtual market hub design as laid out by the European Gas Target Model. The United Kingdom and the Netherlands have been the most successful in implementing this design. In the Netherlands, the natural gas pipeline network is owned and operated by a sole TSO named Gasunie Transport Services (GTS). GTS maintains separate systems for different gas qualities (high-calorific gas and low-calorific gas) but operates a single virtual hub on the system, called the Title Transfer Facility (TTF).

In a pipeline network configured with a single virtual hub, the TSO is responsible for managing the physical flow routes within the network, and shippers only contract entry or exit capacity.

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Some European Union member countries are still working towards the target model and have more than one market hub and several individual TSOs operating within their countries. This is most often a residual effect of how these countries’ natural gas markets originally developed.

For example, Germany has 15 TSOs and two virtual market hubs, namely GASPOOL and NetConnect Germany (NCG).The five TSOs in the northern region of Germany joined together to create subsidiary company, GASPOOL, which is responsible for operating and balancing the entire market entry-exit network system. However, each individual TSO retains ownership of its system and continues to manage capacity bookings and network infrastructure development and investments.

The interconnection points between TSOs in different countries are called cross-border interconnections. TSOs offer capacity on entry and exit points at cross-border interconnections as a bundled product. Instead of purchasing two products separately – one for exit capacity from one TSO and another for entry capacity into the other – shippers can purchase both products together in a single transaction as one bundled product. The main reason for the bundling of capacity products is to remove the ability of shippers to trade at the border points, instead forcing trades to the virtual trading point of one system or the other. This may require shippers to be registered in adjacent systems and can add complexity or be a barrier to entry for smaller shippers.

Across the European Union, there are 44 TSOs. Adjacent TSOs are required to enter into interconnection agreements that specify rules for co-operation and dispute settlement.

The network code on interoperability and data exchange rules issued in 2015 enables the necessary harmonisation of interconnection agreements, units used, gas quality management, odourisation, and common data exchange, leading to effective market integration. The European Network of Transmission System Operators for Gas (ENTSOG) is responsible for monitoring the implementation of this network code, and the country’s national regulator has the authority to issue sanctions against a TSO if it does not follow the EU Network Codes.

The EU Network Codes give some flexibility for national regulators to implement code requirements within a country’s context. If there is conflict among national regulators, then the Agency for the Cooperation of Energy Regulators (ACER) has the authority to decide if the national regulators are not able to reach an agreement or upon a joint request from the regulators.

Hub infrastructure characteristics include two or more pipeline interconnects with available capacity and a single operator. Local domestic production facilitates the initial establishment of a hub. In the United States, there are combinations of different pipeline system and market centre configurations that have been developed by the pipeline companies to serve the varied market dynamics. In the European Union, the TSOs follow central EU planning guidance to develop pipeline systems and hubs with relative uniformity across the region. TSO and pipeline company designs ultimately require regulatory approval.

The following sections will discuss gas infrastructure development and TPA measures, which work together with the market design to ensure the establishment of a fair and completive open market.

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