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A sector undergoing change

From town gas to natural gas, from the liberalisation of the gas market to the energy transition – the gas sector was and is undergoing systemically relevant changes. These changes are caused by the continuing development of the energy policy triangle, according to which energy supply must be secure, affordable and environmentally compatible. The gas transmission system operators (TSOs) are working to achieve this goal every day around the clock.

Our energy system and hence also the gas sector are constantly changing. When gas was first supplied to end users, which was in eastern Germany only until the early 1990s, it was town gas mostly produced from coal. Since the 1960s, the TSOs have also been transporting natural gas, which has increasingly replaced town gas. Natural gas was first imported from the Netherlands and from the beginning of the 1970s also from Russia and Norway. Today, these imports account for most of the natural gas consumed in Germany, with just under six percent extracted from domestic sources. Gas of very different qualities, so-called low-calorific gas (L-gas) and high-calorific gas (H-gas), is imported via pipeline networks. But more and more natural gas is also reaching Europe by sea, albeit in liquefied form as LNG (liquefied natural gas). The gas imports are fed into the German pipeline system at so-called cross-border interconnection points (IPs). From these points, the transmission system operators (TSOs) transport the gas to the distribution system operators (DSOs), such as municipal utilities or other energy utilities, and directly to large industrial consumers. Around one percent of the gas volume is biogas converted into biomethane, fed locally into the pipeline or distribution grid by numerous biogas plants. The DSOs then transport the gas through their highly integrated pipeline system to the end customers. With a length of approx. 40,000 km, the German gas transmission networks form the backbone of gas transportation in Germany. The downstream distribution grids have a total length of more than 470,000 km. The gas networks thus guarantee both the supply to German consumers and transit of gas to neighbouring countries.

The German gas market was gradually liberalised from 1998 onwards. Today it comprises a large number of players who act as producers, network operators, traders, storage operators, regulatory authorities or consumers. It is constantly being developed and adapted to the challenges of energy system transformation in line with the three energy policy objectives ('energy policy triangle') – affordability, environmental and climate friendliness and security of supply. Due to its geographical location, the German gas market is also a trading hub and Germany is an important transit country for gas shipped across Europe.

Natural gas is a climate-friendly energy source, and second only to mineral oil in Germany in terms of importance. According to the Federal Ministry of Economics, in 2018 natural gas accounted for just under a quarter (23.5 percent) of Germany's primary energy consumption – i.e. the total amount of energy used annually. Consumers use natural gas in a wide variety of areas.

Another major transformation has only just begun: Other gaseous media, such as renewable and decarbonised gases, whether hydrogen or synthetic methane, are gaining in importance and are set to play a major role in achieving climate protection goals. Gas will become completely climate-neutral in the future.

Competition in the gas market

The liberalisation of the gas market began at the end of the 1990s with the abolition of exclusive rights of way and sales territories and the unbundling of vertically integrated energy companies, i.e. the institutional separation of production, trading, sales and pipeline transportation. Unbundling is seen as a central prerequisite for market liberalisation. Initially, unbundling was limited to the unbundling of accounts and information. This was followed in Germany by legal and organisational unbundling in 2005, then rules were tightened further in 2011 with the implementation of ownership unbundling. However, it is still possible for network operators to be part of a holding company, provided that the network is operated by an independent company whose personnel are independent of the holding company and make their own investment decisions. This has created a number of TSOs operating as autonomous, "independent transmission operators" (ITOs).

In the course of implementing the first European Gas Directive, non-discriminatory network access for market participants (third parties) was introduced in 2002. As a result, network operators are obliged to open their networks to all market players on equal terms, the conditions for which were initially agreed under contracts between the industry associations ("negotiated TPA"). For customers, the opening of the market means a free choice of gas suppliers, and since 2005 the Federal Network Agency (BNetzA), as an independent regulatory authority, has been monitoring compliance with network access rules. With the implementation of the Gas Network Access Ordinance (GasNZV) and the Gas Network Charges Ordinance (GasNEV), the model of "regulated network access" was introduced and continues to apply in Germany.

Since then, a large number of players have entered the gas market and ensure competition at various stages of the value chain. Today, there are a total of 16 transmission system operators, around 700 distribution system operators, 25 storage operators and numerous traders. The gas network provides a kind of platform for market activities. 

Market area merger

Before 2005 there were over 20 market areas in Germany. A market area is a geographical area served by several transmission system operators and downstream distribution system operators. Market areas are comparable to trading zones (also known as balancing zones). They simplify gas trading. Within a market area, shippers can conclude flexible entry and exit contracts and use the booked capacities. The number of market areas has been significantly reduced. Since October 2011, there have only been two market areas: NetConnect Germany (NCG) and GASPOOL.

Today's GASPOOL market area (northern and eastern Germany) comprises the gas transmission networks of ONTRAS Gastransport GmbH, GASCADE Gastransport GmbH, Gastransport Nord GmbH, Gasunie Deutschland Transport Services GmbH, Nowega GmbH and Ferngas GmbH. Also integrated at an operational level are Open Grid Europe GmbH, Fluxys Deutschland GmbH, Lubmin-Brandov Gastransport GmbH, NEL Gastransport GmbH and OPAL Gastransport GmbH & Co. KG.

The transmission system operators bayernets GmbH, Fluxys TENP GmbH, GRTgaz Deutschland GmbH, Open Grid Europe GmbH, terranets bw GmbH and Thyssengas GmbH cooperate in today's NCG market area (southern and western Germany). The two market areas thus connect a total of 16 pipeline systems with around 700 downstream distribution networks. The market areas are operated by the affiliated companies GASPOOL Balancing Services GmbH and NetConnect Germany GmbH & Co. KG. The two market area managers coordinate the activities of the gas network operators in their respective market areas, and they handle the operation of the virtual trading point, balancing group management and system balancing activities on behalf of the transmission system operators.

The remaining two market areas are to be merged by October 2021 in order to further intensify competition and make Germany one of the most liquid gas trading points in Europe. Together with the two market area managers, the German transmission system operators are working on the details of this new market area. The progress of the work can be followed on the website "Deutschland – Ein Marktgebiet" ("Germany – One Market Area"), which was specially created for this purpose.

Market area conversion

Another change on the German gas market has been taking place for the last few years: the market area conversion from L-gas to H-gas, which is driven by the decline in L-gas ("low calorific gas") production in Germany and the Netherlands.

The switch to H-gas ("high calorific gas") is taking place in Hesse, Lower Saxony, North Rhine-Westphalia, Rhineland-Palatinate, Saxony-Anhalt and Bremen. Most of Germany is already reliably supplied with H-gas, and the conversion of the relevant other regions to H-gas will take place gradually up until 2030. The gas network development plan and the implementation report provide a detailed timetable for this process. Section 19a of the German Energy Industry Act (EnWG) stipulates that all conversion-related expenses incurred by network operators throughout Germany are to be borne by all gas network users. The process is monitored and controlled by the Federal Network Agency.

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