France must urgently implement new rules to oblige shippers to import LNG after new gas capacity auctions indicated a massive increase in prices in France's southern PEG Sud market in the coming years, intensive users group UNIDEN said late Monday.
There are three gas trading areas in France: GRTgaz's PEG Nord, GRTgaz's PEG Sud in southeast France, and Total's TIGF PEG area in southwest France, on the border with Spain.
Increasing exports from France to Spain and low use of France's three LNG terminals has exacerbated a physical congestion issue between the PEG Nord and PEG Sud markets, pushing up prices in the south to significantly above those in the north.
In late December prompt gas prices at PEG Sud rose to almost Eur40/MWh, some Eur12/MWh above prices in the PEG Nord market.
Chemicals and metals companies situated in the southeast have been particularly impacted by the high gas prices, making them less competitive with firms in other regions such as US.
A first week of auctions for Nord to Sud capacity has indicated the price for 2015 could rise by 500%, UNIDEN said in a statement.
For UNIDEN, whose members include many of France's largest companies, such an increase would "set in stone" an artificial gas price spread between Nord and Sud markets of 15% to 20%, and urged the Council of State to issue a new decree requiring shippers to import LNG from October 2014 "at the latest."
France has already introduced a suite of measures aimed at reducing price spreads between PEG Nord and PEG Sud. A new law was introduced late last year entitling gas-intensive companies in the south to have priority access to capacity from April 2014, but UNIDEN said this only covers around half of its members' volumes.
National energy regulator CRE has said it is considering a range of new rules aimed at reducing gas price spreads between the two markets, including further regulation for Mediterranean LNG terminals.
France has two Mediterranean LNG terminals, Fos Cavaou (capacity 97 TWh/year) and Fos Tonkin (57 TWh/year), as well as a 123 TWh/year Atlantic facility at Montoir de Bretagne.
CRE has said grid operator GRTgaz could hold a tender for daily nominated capacity in the direction south to north and this would require shippers to commit to sending gas from the Mediterranean LNG terminals at Fos sur Mer.
This mechanism could offer an extra 50 GWh/day of north to south capacity, and alternatively, a virtual single market for France could be created, the regulator said, ahead of the planned merger of all three French markets in 2018.
However, this would require grid operator GRTgaz to buy significant volumes of gas from the PEG Sud market and would hike customers' transmission tariffs, CRE said.
UNIDEN also called for the implementation of a new mechanism to reward industrials for cutting gas demand, alongside improvements for the allocation of capacity.
These measures are urgently required "in order to avoid an economic and industrial crisis," it said.
