propose and guide the transition to a liberalised market.

Throughout the reform process, it is important to continue to maintain a sustainable and predictable investment climate with the sanctity of contracts and a common set of rules and norms for all entrants and participants to reduce risk and instil confidence in the market. Participants are looking for assurance that the agreements they enter into will be honoured, even in potentially unstable market fluctuations.

Source: © 2019 Exxon Mobil Corporation.

Gas market designs

This section addresses the key practices and policies that underpin the success of US and EU gas markets. Table 3 lists the key features of the US and EU natural gas markets.

The United States and the European Union are the largest liberalised gas markets in the world. Natural gas is an important energy resource in each of these markets and accounts for approximately 25% of the total energy consumed. With the shale revolution, the United States has increased its domestic supply significantly, which made it a net exporter in 2017 for the first time since 1957. The European Union produces approximately 22% of its demand and relies on pipeline gas and LNG imports to satisfy its demand. The United Kingdom and the Netherlands had been self-sufficient for decades, but, due to the decline of domestic supply, both countries became net importers in 2004 nd 2018, respectively. The markets have significant interconnected pipeline systems providing natural gas to all reaches of their market areas. There are thousands of receipt and delivery points within the market areas.

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Gas Market Liberalisation Reform General annex

Notes: bcf/d = billion cubic feet per day; bcm/d = billion cubic metres per day. * The European Union includes the United Kingdom and excludes Norway.

There are similarities and differences between the market designs in terms of infrastructure and market hubs, but both markets demonstrate the attributes of effective market regulation and transparency requirements.

Box 6. Shippers

The shipper is the owner the gas which would be transported in pipelines and the shippers sign the transport contract with the pipeline company according to the related regulations. Shippers may be gas producers, consumers, distributors, or marketers who contract the capacity of pipeline to move their gas to different market areas. In the United States, pipeline companies are not allowed to ship their own natural gas on their pipelines, but a legally separate marketing affiliate of the pipeline may compete for pipeline capacity. In the United States, shippers and other physical gas market participants are not regulated by a national or federal regulatory agency but require and have to abide by contractual agreements with pipeline companies or infrastructure owners, who are regulated by national or federal regulatory agency. The terms and conditions of the shipper and pipeline owner contracts require regulatory approval.

In the United Kingdom, the independent national regulatory authority must grant a shipper a licence before it can operate their business. In the UNITED KINGDOM, there are over 200 licensed shippers including major producers (e.g. BG Group, Equinor, and GAZPROM) and major suppliers (e.g. Centrica, Uniper). Many suppliers are also shippers. Shipper is in the core of the market players as the chat shows.

In UK and EU there are requirements set by the regulatory agency of the gas market, such as gas possession, payment guarantee etc.

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The relationships between the shipper and other market players

Source: BG and China5e (2014), What Experiences and Lessons Can China Learn from the UK and US Gas Liberalisation & Regulatory Practices, China5e, Beijing.

US design

In the United States, natural gas pipelines are owned and operated by non-state-owned investor entities. The pipeline companies offer gas transportation services and have to make gas transportation capacity available to all interested shippers.

In the United States, there are many pipeline companies. Large-diameter pipelines that transport natural gas across state boundaries are called interstate pipelines. Pipelines that transport gas within state borders are called intrastate pipelines. The 30 largest interstate pipeline companies own approximately 76% of all interstate natural gas pipeline mileage and have a capacity of about 280 billion cubic feet (bcf) (8 billion cubic metres), which is 61% of the total capacity available within the interstate natural gas pipeline network (EIA, 2017).

A single midstream company can own and operate many pipeline systems across the country. For example, Kinder Morgan owns approximately 19% (over 57 000 miles) of all interstate natural gas pipelines, and its pipelines transport approximately 40% of the natural gas consumed in the United States (Kinder Morgan, 2017).

Many different pipeline companies can also own and operate pipeline systems within a single state or region and within close proximity to each other. For example, in the EI Paso-Permian section of the state of Texas, there are more than ten different pipelines companies operating.

Pipeline companies usually divide their pipeline systems into smaller parts or sections– such as zones, laterals, segments, production aggregation areas, market areas, or sections bound by compressor stations– which helps their operations and simplifies tariff development. Pipeline tariffs are often based on moving gas from section to section versus tariffs for specific receipt and delivery points. Pipeline capacity is offered and reserved by these sections and by individual points within the section.

As an example, Figure 6 is a map of a pipeline called the Natural Gas Pipeline Company of America (NGPL), owned by Kinder Morgan. It transports gas across eight different states within the United States and is divided into zones, each highlighted by a different colour on the map.

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Figure 6. NGPL system map

Note: This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Sources: Jim Simpson (2015), Kinder is a Cowboy, on a Steel Pipe He Rides – Kinder Morgan, NGPL and Natural Gas Markets, RBN Energy, Houston, https://rbnenergy.com/kinder-is-a-cowboy-on-a-steel-pipe-he-rides-kinder-morgan-ngpl-natural-gas-markets.

In the United States, pipeline companies may configure and promote certain parts of their pipelines as market centres. The key characteristics for a market centre are receipt and delivery access to two or more pipeline systems, transportation between these systems, and availability of storage or supply. The infrastructure configuration of these market centres varies within the United States.

Market centres can be on a short section or lateral of a pipeline connected to a gas processing plant or storage facility on a highly interconnected section of a pipeline system, or they can cover an entire pipeline system. The length of the pipeline section developed as a market centre can be many miles and even can cross multiple states.

Examples of different market centre configurations include the following:

Pipeline segment connected to a processing plant:

The Henry Hub is a market centre developed on a short section of the Sabine pipeline, which had been connected to the Henry gas processing plant, prior to its shutdown. This portion of the Sabine pipeline interconnects with 13other pipelines and a storage facility, all within a few miles, as shown in the circled area in Figure 7.

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Figure 7. Henry Hub infrastructure (should change to the new draw one by PIP without right part)

Note: These maps are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Source: Sheetal Nasta(2015), The evolution of the Henry Hub natural gas benchmark in the US, RBN Energy, Houston, http://www.shaledispatch.com/the-evolution-of-the-henry-hub-natural-gas-benchmark-in-the-us.

Highly interconnected pipeline section:

NGPL manages sections of its pipeline system – which can be a part or the whole of each zone shown in the map in Figure 6 –as independent market centres. Many of these market centres on the NGPL have developed sufficient liquidity (more than 10 to 20 transactions) to have a published physical market price index. The NGPL Midcontinent market centre is one of these liquid hubs located on NGPL within its Midcontinent Receipt and Delivery Zone, highlighted in purple in the NGPL system map in Figure 6.The section of the NGPL pipeline that supports this hub runs through four states and has many receipt points from production in the area, a storage facility, and other interconnecting pipelines.

Entire pipeline system:

Southern California Gas (SoCal Gas) and Pacific Gas and Electric (PG&E) are the two major intrastate pipeline networks that serve the California natural gas market. More than 90% of the natural gas consumed in California comes from out-of-state natural gas production and is transported via interstate pipelines into the SoCal Gas and PG&E systems at receipt points along the border of these networks. PG&E manages all its city-gate delivery points as a single market centre. SoCal Gas manages its entire network except for the border points as a single virtual market centre, similar to the EU market infrastructure configuration. In the SoCal Gas system, gas can be transported from any of the border points to anywhere within the network for the same rate (postage stamp tariff).

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