The future of the regulatory framework for LNG terminals

The future of the regulatory framework for LNG terminals

Frontier report suggests a more flexible approach to Third Party Access (TPA) regulation of LNG import terminals across Europe is needed.

The current TPA regulation of LNG import terminals in the EU goes back to the Second Gas Directive of 2003. Since then, significant changes have enabled poorly developed gas markets with little competition and few CAPEX-intensive LNG terminals to transform into mature and liquid gas markets in key regions (e.g. North Western Europe). Frontier was asked by GATE Terminal to explore whether this fundamental market development has created  the opportunity and need to modernise the regulatory framework for LNG terminals.

Our report explores the two main TPA regulatory regimes that are employed in Europe:

  • Firstly, the regulated TPA (rTPA) regime, which allows bilateral contracts between market parties to take place based on regulated prices, and which has an option for LNG terminal operators to apply for an exemption from regulation on a case-by-case basis. The rTPA regime was introduced for LNG import terminals in 2003 and is useful to prevent horizontal market power as well as vertical foreclosure of downstream markets by incumbents.
  • Secondly, the negotiated TPA (nTPA) regime, which provides access based on negotiated prices between the parties, and allows for more commercial freedom for example with regards to the contract duration.

In regions where increased competition has formed an integrated internal market and the need for regulation has decreased, our study identifies three key benefits to allow for the nTPA regime:

  • Operational freedom for LNG terminal operators to offer services in line with market demand
  • Investment signals based on market demand rather than regulatory incentives
  • Removing the uncertainty of the exemption procedure used within the rTPA regime.

Based on the observation that the development of the gas and LNG market differs quite significantly across Europe, the report suggests tailoring the regulation to the market maturity in different Member States by allowing them to select between rTPA and nTPA. Similar to the regulatory framework currently in place for gas storages, this choice would be facilitated by guidelines covering key areas of effective competition. For the proposed nTPA regime, the report further discusses primary and secondary capacity allocation mechanisms, the role of published tariffs and conditions as well as unbundling requirements. As such, the recommended policy provides safeguards for effective competition while enabling the benefits of commercial freedom where the market maturity allows it.

Frontier regularly advises clients on EU energy policy in the gas and electricity sectors. For more information, please contact or call +44 (0) 20 7031 7000.