This article appeared on the author’s personal website.

The Gas Network Code is planned as a set of rules able to determine the market development, transaction number increase and discipline of the market participants. However, 9 years after the process started there have not been noticed any significant steps in the development of market nor the discipline of participants. In fact, we do not have a uniform document of the Code, but an endless series of additions, insertions and changes to the old document, mostly “overnight” ones.

During the “Gas market starting point” campaign I will begin with an analysis of the current gas market status, starting with an analysis of causes that make the network code inoperable.

I estimate seven causes for Network Code glitch, presented in line to their importance:

A. Antagonistic legislation for the Network Code
B. Fragmentary information text inside of Network Code (lack of principles and methods of carrying on activities)
C. The physical configuration of the current NTS and adjacent systems
D. Lack of flexibility mechanisms in the gas market in Romania
E. Lack of computing platforms and ways of data transmission
F. Sabotage of the Code implementing process
G. Incompetence

A. Antagonistic Legislation for the Network Code

1. Lack of equitable, fair, non-discriminatory mechanisms which comply with the Civil Code (art. 1674 and art. 1678), of the allocation of supplied quantities to:

• Individualize the sold amounts,
• Allow suppliers to track their own transport on the purchase-transport-storage-transport scheme, in order to be able to ask them for discipline in marketing and transport activity,
• Create an alignment with the manner of allocation through the Transport Network Code and to allow the matching of quantities,
• Create a method to align with the allocation of distributed or stored quantities.

2. Lack of distribution networks Codes, as a set of rules that establishes the responsibilities and rights of the parties, but also lack of a method that ensures continuity of gas flow from the transmission system to the final consumer, the penalties or benefits for the system user,

3. Lack of storage Codes, aa a set of rules that establish the responsibilities and rights of the parties, but also the method of ensuring acquisition/delivery and storage/retrieval of gas in/from storage facilities. The lack of detailed rules regarding the storage/extraction from storages determines often inequities in returning its own gas from storage facilities,

4. Lack of the natural gas market Codes (market model), containing rules, procedures and clear instructions regarding the gas trading and interaction of suppliers with the “carriers” (allowing traceability of the flow in real time through the entire circuit source-consumer). Among other items to be defined in this document, mechanisms to ensure flexibility and quick access tools for all participants and developing cheap guarantee systems of commercial operations are primordial,

5. Lack of anti-poverty energy policies and supporting vulnerable customers through real methods, that will sustain removal of preferential prices and of regulated market,

6. Lack of a Competent Authority for the entire energy system (not only in natural gas), which will define preventive/reactive emergency plans, to monitor and intervene by principles that will not affect the commercial activity,

7. Handling directly or indirectly the gas market using primary or secondary legislation, approach that is utterly inconsistent with the idea of Free Market (the gas basket, the requirement for producers to provide, no matter the circumstances, gas for regulated consumers, state intervention in pricing at domestic production etc.)

B. Lack of the following principles in the Network Code

1. Commercial mechanisms to facilitate trade capacity through transparent mechanisms, flexible, fair and easy to apply, including intraday.

2. Pays only the one who made a mistake and only for his deed to the responsibilities assumed in contracts with the carrier,

3. The price of the mistake is set by the Romanian market at the moment of an error (not ante, nor post factum).

4. Speculative lawful purpose, allowing the emergence of counterparties in the market to sanction the indolence of users

5. Commercial balancing, seconded by a physical and a hydraulic balancing.

The way the carrier will pay for his mistakes (failure to comply with the contractual terms of the provision of capacity reserved and ensure continuity of supply, even if it is due to other network users), in relation to those that made the fault, the price of this error being also necessary to be established by the Romanian market at the time of the mistake.

7. Equitable, fair, non-discriminatory allocation of carried quantities, and in compliance with the Civil Code (art. 1674 and art. 1678), both for entry and exit points to/from the transmission system.

Note: This allocation should not be confused, but should be aligned with the method of allocating the supply contracts (not covered by the Transport Network Code, being a rule that should result from a future Gas Market Code) and additional to allocated distributed or stored quantities (which also do not fall under the Transport Network Code, requiring codes of network distribution and storage).

C. The physical configuration of the current NTS and adjacent systems

1. What is today called NTS is actually a mixture of transport systems: closed (local, type source-consumption), semi-closed systems (regional) and a transport system “0”. Hence, the rules that apply to the “0” system do not match for the closed or semi-closed ones (technical, hydraulic, operational, functional differences etc.). Moreover, the current code treats the systems that do not communicate physical as if they are communicating physically, respectively it is maintained the idea of a physical balance in the NTS, but in reality this is merely an arithmetic illusion. The code will be applicable only in a homogeneous system.

2. Natural gas stored exclusively seasonal, missing multi-cycle deposits that would meet the requirements of the market natural, technological and strategic deposits.

D. Lack of flexibility mechanisms

1. That lack of gas storage throughout the year depending on demand and supply in:

• underground deposits (multicycle deposits)
• transportation/distribution pipeline
• costumer-sited systems

2. Lack of sales mechanisms under continuous regime

3. Lack of mechanisms for staple services (interruptible capacity)

4. Difficulty of introducing the gas securities as elements of trade, for selling gas from gas consumers and/or as collateral

5. Lack of receipt introduction as element of trade and / or as part of guarantee

6. Encourage development of new products in the market to provide increased flexibility in the market (loaning, parking).

E. Information system platforms

1. Lack of computerization on the gas market by developing systems for storing and transmitting information between operators, suppliers, balancing market operator, gas exchange market, competent authority etc.

2. Lack of platforms that would allow booking/trading on primary and secondary market capacity of:

• transport
• distribution
• storage on the primary and secondary market

3. Lack of sales/nomination/allocation platforms:

• Sales/acquisitions of gas
• Transport services
• Distribution services
• Storage
• Pipeline storage services
• Flexibility services (loaning, parking, limiting price volatility through stop-limit etc.)

4. Lack of platforms for balancing the system with the existence of at least 5 sub platforms:

• Trade balance through purchase/sales orders ex-ante for the following day/intraday
• Trade balance by placing anticipative bonds for the following day/intraday
• Ex-post trade balance through buy/sell orders
• Physical/hydraulic balancing system by placing anticipative orders for the following day/intraday
• Physical/hydraulic balancing of NTS by placing anticipative orders for the following day/intraday

5. Lack of matching platforms, clearing platforms, tracking bad debtors, trading securities and gas receipts etc.

F. Sabotage for Network Code’s application process

The history of 9 years of failure of the Network Code could not be achieved without sabotaging this process. Saboteurs have existed within the carrier (depression change, loss of power for the sole owner of the information etc.), inside the regulator (the fear that applying the code would affect a number of targets, such as keeping a constant price in the regulated market), and at the level of some network users, suppliers or consumers in the market (the motivation being financial and includes a reduction of profits following from increased market discipline).

G. Incompetence

Another important aspect of ineligibility of the Network code is due to misunderstanding the philosophy of a free market rules and the role of the Network Code, coupled with the incompetence of some people asked to perform and lead processes in the business of gas transmission, on the “gas is still flowing” principle.