Regulation of natural gas pipeline transportation and storage

Ownership and infrastructure

Describe in general the ownership of natural gas pipeline transportation, and storage infrastructure.

The natural gas pipeline transportation sector is organised as a private business sector; however, the majority of distribution system operators (DSOs) and, to some extent, transmission system operators (TSOs) as well, are owned by municipalities or local communities. Irrespective of the ultimate ownership, all market participants must adhere to general competition rules and abstain from state aid. The introduction of unbundling requirements, which are a central element in the regulated energy framework, have significantly changed the ownership structure in recent years. Apart from a de minimis exemption, which provides DSOs with fewer than 100,000 customers with various waivers from the unbundling provisions, in particular, legal unbundling, TSOs and DSOs, as a rule, must unbundle and be run independently from supply activities.

Additionally, gas storage operators are privately organised but are subject to certain operational and legal unbundling provisions. There is no regulated third-party access to storage, but gas storage operators must publish their general terms and conditions and allow access on a non-discriminatory basis.

Regulatory framework

Describe the statutory and regulatory framework and any relevant authorisations applicable to the construction, ownership, operation and interconnection of natural gas transportation pipelines, and storage.

Gas pipelines are typically constructed on the basis of planning approval decisions. Special rules apply for the construction of gas pipelines in the Exclusive Economic Zone of the North Sea and the Baltic Sea. Prior to the actual licensing procedure, it is also necessary that the project be acknowledged at the level of spatial planning law. The planning procedures for German infrastructure projects, including gas pipelines, are generally complex and time-consuming and they are characterised by intensive consultations with public and private stakeholders.

In addition, the commencement of operations of an energy supply grid (including gas) requires licensing under the Energy Industry Act (EnWG). This applies to transmission grids and distribution grids alike. Grid operators are also subject to a certification process, to ensure compliance with the rules on unbundling in the energy sector.

Traditionally, underground gas storage facilities reuse mining sites with underground caverns created in the mining process. Construction and operation of underground gas storage facilities require licensing under the Federal Mining Act (BBergG). The facility operators must obtain consent for their operational plan for the underground gas storage facility from the mining authority. Often, operators of underground gas storage facilities also hold a mining law licence as a result of their prior mining activities on the site. It is useful for gas storage operators to hold such a mining licence as this licence also covers the underground support structures stabilising the cavern. In addition to licensing under the BBergG, a licence under state and federal water laws may be necessary with respect to connections to the underground storage facility crossing the aquifer. Surface structures may require a building permit.

Depending on the size of the pipeline or storage project, it may be necessary to carry out an environmental impact assessment. This is not a separate procedure but part of the licensing procedure for the respective project.

Land rights

How does a company obtain the land rights to construct a natural gas transportation or storage facility? Is the method for obtaining land rights to construct natural gas distribution network infrastructure broadly similar?

Land rights for gas transportation and distribution pipelines are typically secured with a land-use agreement and additionally by means of a restricted personal easement. If private owners refuse to grant personal restricted easements, private owners may be forced to grant such rights by means of compulsory expropriation proceedings. Municipalities are required to grant operators of local gas supply networks supplying gas to the citizens of that municipality access to public roads for pipeline use in return for payment of a usage fee.

Operators of underground gas storage facilities must also secure land rights for the sites of their underground caverns as well as connecting pipelines from the landowner. As with gas pipelines, this is done by means of land use agreements and restricted personal easements.

Access

How is access to the natural gas transportation system and storage facilities arranged? How are tolls and tariffs established?

Regulated third-party access to the gas transportation system is granted by the EnWG and the Gas Network Access Ordinance (GasNZV). Tariffication is subject to the Ordinance on Gas Network Tariffs and the Incentive Regulation Ordinance. The grid operators, irrespective of the level on which they operate, can only charge regulated and approved grid fees in line with the predetermined fee cap set by the regulator.

The transportation customer needs to maintain two contracts: one for entry into the system and one for its exit. Since entry and exit points may refer to different TSOs, they are obliged to ensure physical gas flows between them. As a consequence, the 16 gas TSOs entered into a cooperation agreement and established different market areas with a virtual trading point (VTP) to concentrate liquidity and for price references.

With the launch of a unified nationwide market area, the new Trading Hub Europe, THE is the sole VTP in Germany. To trade at the VTP, a gas trader must conclude a balancing contract with the responsible balancing group coordinator or use a sublicence of another balancing group coordinator. To be authorised as balancing group coordinator, the person must fulfil the requirements of the German Association for Gas and Water Supply (DVGW) and apply for a Global Location Number Code. It is then responsible for balancing capacity and volumes at the VTP.

A gas end customer, whether residential or industrial, just needs to maintain existing physical grid access, as per the provisions of the Low-Pressure Connection Ordinance and a gas supply contract with his or her supplier who would usually arrange for grid use. The respective fees would be passed through to the customer.

Since 2015, the German gas market has changed the supply quality from low-calorific gas to high-calorific natural gas. This huge infrastructure project will be completed in 2030. The change was based on the decline of imported low-calorific gas from the Netherlands. Also, special provisions apply for biogas, which enjoys preferred access to the gas grid and various other advantages.

Gas storage facilities are not tariff-regulated as such but various provisions in the regulation limit the influence of operators on the contractual terms that are publicly available. In general, the principle of negotiated third-party access applies. In cases of denial of access or any other dispute, in particular about pricing, the potential gas storage user can enforce any claims under civil law.

Interconnection and expansion

Can customers, other natural gas suppliers or an authority require a pipeline or storage facilities owner or operator to expand its facilities to accommodate new customers? If so, who bears the costs of interconnection or expansion?

The long-distance gas transportation grid is developed on the basis of a biannual grid development plan put forward by the grid operators and confirmed by the Federal Grid Agency. The grid development plan sets forth all measures required for grid expansion over the next 10 years. Grid operators can charge grid usage fees. The fees are set for four-year periods in a somewhat complex official procedure. Investment costs are considered for the calculation of the grid usage fees.

The most recent grid development plans are the Grid Development Plan 2020 to 2030.

The German gas storage market is essentially privately operated and does not constitute a national reserve that is subject to stringent government control. Therefore, the expansion of gas storage facilities is a commercial matter for the operator or an investor to decide.

Processing

Describe any statutory and regulatory requirements applicable to the processing of natural gas to extract liquids and to prepare it for pipeline transportation.

Gas for injection into the transportation system must meet certain technical and quality parameters that are further laid down in technical standards and process descriptions of the DVGW, inter alia, in technical description DVGW G 260, as updated in 2020.

Contracts

Describe the contractual regime for transportation and storage.

Gas transportation is regulated by the GasNZV. Access to storage is based on negotiated third-party access limited by general terms and conditions (GTCs).

Contracts to be concluded for transportation and supply include:

  • grid access contract for physical grid access;
  • entry and exit agreement for transportation; and
  • balancing group for balancing.

 

For storage services, customers must sign up to commercial terms based on the published GTCs of the individual operator for injection and withdrawal. An important item is the ownership of the gas in storage and its treatment in the case of insolvency of any party.