Key components of the European natural gas infrastructure include transmission and distribution pipelines, storage facilities, interconnectors and LNG facilities. The transmission and distribution networks are generally price regulated, which means that these assets earn a guaranteed revenue stream, which is set by the regulator (a process known as a price control). However, storage, LNG and in some cases interconnectors are often merchant investments and must compete in the market to earn revenues. FTI Consulting Midstream Natural Gas professionals advise companies as well as regulators on price controls and the conditions for operating regulated assets as well as on the economics and regulatory requirements of investing in merchant infrastructure.
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Transmission & Distribution
Key components of the European gas infrastructure are two different types of pipelines – transmission and distribution. Usually part of larger, longer distance networks, transmission pipelines use high pressure to deliver faster gas flows. Distribution pipeline networks are smaller pressure pipelines that deliver gas to people’s homes and businesses. Transmission and distribution networks throughout Europe are subject to regulation with price, tariff and revenue controls. FTI Consulting has economists who are experts who advise companies as well as regulators on price and revenue controls. Also, we have professionals who are experts at negotiating with regulators. They advise clients on negotiating with regulators, on setting revenue goals, on calculating operating costs, and on how to drive home a position to a regulator. In addition, we advise companies, pension funds or other investors who are interested in investing in regulated assets such as gas distribution and transmission networks for their regulated rate of return.
One of the big challenges facing storage operators in Europe is that, with demand for gas declining, there is less demand for storage. As such, there has been closure and mothballing of storage sites in Europe. At the same time, European governments are keen to ensure security of supply and gas storage plays an important function in providing a reserve of gas, which can be used in periods of high demand. Different regulatory approaches apply to European gas storage, with it being price regulated in the some European countries, subject to certain regulatory requirements to incentivise it being used and entirely unregulated in others. FTI Consulting Midstream Natural Gas professionals advise storage operators who own the assets on how, in a world of declining demand, to establish best value for their products, how to navigate the governmental and regulatory landscape, and how to compete with competitive storage assets.
Interconnectors are pipelines that connect two markets or exist within a market to connect two different networks. Natural gas interconnectors are important in the drive to achieve a single European energy market. They permit gas to flow to the market signalling the highest demand. Some interconnectors are price regulated and others are not. However, even for merchant interconnectors, there is significant regulatory oversight and regulatory approvals required for the way the capacity is made available to the market. FTI Consulting Midstream Natural Gas professionals have worked with clients who own or are planning to build interconnectors. This includes issues like developing strategies for engaging regulators, assessing the economic and business case of the asset, and developing the ideal approaches to secure regulatory approval to build or buy existing interconnectors.
With Europe dependent on imports to meet its gas demands, liquefied natural gas (LNG) plays an important supply role, coming from around the world to regasification terminals based in the UK and across Europe. The current outlook for LNG is changing rapidly, with cheap sources of excess shale gas in the U.S. Furthermore, given the potential for exports of LNG from the U.S. into Europe in the coming years, there is a question about how the outlook for the gas supply/demand balance in Europe will evolve and which investments are likely to be profitable. FTI Consulting Energy professionals are well versed in LNG issues. We deal with LNG operators in pricing disputes and compliance with all rules and regulations. Also we advise on a more strategic level, such as the evolution of the supply and demand, on balancing the energy needs of Europe and likely future developments in the LNG regulatory landscape.