Natural Gas
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The main policy trend in natural gas markets in the last two decades has been the liberalization of the market, in both developed and developing countries. This process is often called deregulation, although it does not mean the absence of regulations in the market. Traditionally, governments have considered the energy sector in general as a strategic product and too important to leave it to market forces. Natural gas was regarded as a natural monopoly and stated-owned companies generally run the industry. After the energy shortages of the seventies, the sector has undergone structural reforms to open the markets to competition in order to cut costs and improve economic performance and efficiency. These liberalization policies take different forms and speeds depending on the country. They can include privatisation, introduction of competition based on third party access to gas supply infrastructure, demonopolization or regulatory reforms. The aim is to reduce Governments direct intervention in the markets and to provide efficient, transparent and competitive prices for natural gas, and energy in general. (Impacts of this liberalization process in the structure of the natural gas markets are presented in the Marketing Chain Section, under Market Structure)

Liberalization process was initiated a few years ago in countries such as United States, Canada, United Kingdom and Australia. Movements toward liberalization are still ongoing in the European Union and other countries.

In the United States, natural gas industry has gone through a metamorphosis since the enactment of the Natural Gas Policy Act of 1978, changing from an almost totally regulated industry to a virtually free market. The 1992 Order 636 of the Federal Energy Regulatory Commission that required pipelines to unbundle their transportation, sales and storage services was also of great importance. Pipelines moved from being sellers to being primarily shippers of gas. Producers, pipeline affiliates, distributors and marketers can play a larger role in the supply of natural gas to end-users.

In the European Union, governments are revising the regulatory framework of their gas industry, in the context of the EU Natural Gas Directive 98/30 on gas market opening. The Directive establishes some common rules for the transmission, distribution, supply and storage of natural gas. The gas market is to be opened to competition progressively, during a 10 year period, to reach in 2008 at least 33% of total gas consumption. The first stage had to be implemented by 10th August 2000, opening the markets to competition for consumers representing at least 20% of the gas market. Degrees of liberalization vary among countries, being United Kingdom the most liberalized market and France the least liberalized one, as for June 2001.

* A detailed study on natural gas market liberalization is presented in "Promoting competition in the natural gas industry", OECD (DAFFE/CLP(2000)18), 2000 http://www.oecd.org/dataoecd/34/23/1920080.pdf.
Information on US natural gas market regulations as well as the Natural Gas Policy Act of 1978 can be obtained from Federal Energy Regulatory Commission: http://www.ferc.gov.
Information on the liberalization process and the single natural gas market in the EU, as well as the full text of the Directive 98/30 can be obtained from European Union-DG Energy & Transport: http://europa.eu.int/comm/energy/en/gas_single_market/index_en.html


Energy Policy

Main objectives of energy policy include: economy, security of supplies, environmental compatibility, quality control and consumer protection. There is a policy move in many countries to encourage a greater use of natural gas within the total energy mix. Environmental and security concerns may result in legislation encouraging an increasing use of natural gas because of its clean-burning properties in relation to other fossil fuels. Natural gas plays an important role for energy diversification.

Natural gas policies are also needed to promote investment and development of natural gas supplies, to facilitate construction of natural gas infrastructure and to develop domestic and cross-border natural gas transport as well as markets for natural gas products and services.

Environmental Regulations

Kyoto Protocol and Climate Change

Climate change is an important and widely discussed international issue. Surveys suggest that human activity, including the release of greenhouse gases, is affecting global climate. One of the steps toward the prevention of global warming was the Kyoto Protocol

The 1997 Kyoto Protocol commits Parties to individual, legally-binding targets to limit or reduce their greenhouse gas emissions, adding up to a total cut of at least 5% from 1990 levels in the period 2008-2012. The targets range from a -8% cut for the EU and several other countries, to a +10% increase for Iceland (Under the terms of the Protocol, the EU may redistribute its target among its 15 member states. It has already reached agreement on such a scheme, known as gas "bubble".) The targets cover emissions of the six main greenhouse gases, namely: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydro fluorocarbons (HFCs), per fluorocarbons (PFCs) and sulphur hexafluoride (SF6).

The ratification process of the Kyoto Protocol is still ongoing. At the Conference of the Parties Sixth Session, part 2 (COP6), held in Bonn in July 2001, the 180 members (excluding United States) of the United Nation Framework Convention on Climate Change reached an agreement on the Kyoto Protocol. Under this agreement, the Protocol shall enter into force and become legally binding after the ratification of at least 55 parties to the Convention, including countries representing at least 55% of the total 1990 carbon dioxide emissions from this group.

A way to reduce greenhouse gas emissions would be to encourage the use of cleaner energy sources. In this context, natural gas, as the cleanest of the fossil fuels, could play an important role in an integrated global greenhouse gas reduction strategy. Natural gas provides energy efficiency and energy saving opportunities.

* For more information on climate change, see Intergovernmental Panel on Climate Change: http://www.ipcc.ch. The full text of the Kyoto Protocol can be obtained from the United Nations Framework Convention on Climate change: http://www.unfccc.de. For natural gas and the environment, see International Gas Union and the Environment: http://www.igu.org or Eurogas: http://www.eurogas.org/natgas/envir.htm

The market of greenhouse gas emission rights

Some European Governments have recently introduced laws for industries producing greenhouse gas. In fact, international agreements set the maximum limits of emissions by country or by regions. As an example, the United Kingdom has introduced in the market the rights to emit gas (each right corresponds to an amount of gas). All the industries that produce this kind of gas have to buy as many rights as they need. Besides, these rights can be resold. In this context, the company Dupont UK, has resold in September 2001 its rights to a japanese company operating in oil from the North Sea. This has been the first international transaction with this kind of contract. The objective for Dupont is to get back a part of the money paid to the Government, since they had lower greenhouse gas emissions than rights paid, and re-invest the amounts in research in order to reduce other emissions.


The Energy Charter
(http://www.encharter.org/index.jsp)

The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into legal force in April 1998. Up to 2001 the Treaty has been signed or acceded to by fifty-one states. The Treaty was developed on the basis of the European Energy Charter of 1991. Whereas the latter document was drawn up as a declaration of political intent to promote East-West energy cooperation, the Energy Charter Treaty is a legally-binding multilateral instrument, the only one of its kind dealing specifically with inter-governmental cooperation in the energy sector.

The fundamental aim of the Energy Charter Treaty is to strengthen the Rule of Law on energy issues, by creating a level playing field of rules to be observed by all participating governments. The Treaty's provisions focus on five broad areas: the protection and promotion of foreign energy investments, based on the extension of national treatment, or most-favoured nation treatment (whichever is more favourable); free trade in energy materials, products and energy-related equipment, based on WTO rules; freedom of energy transit through pipelines and grids; mechanisms for the resolution of State-to-State or Investor-to-State disputes; and energy efficiency and related environmental aspects.


Energy Services and World Trade Organization

As for 2001, energy services are not classified as a specific sector neither in the UN CPC nor in the WTO classification list. In the framework of the ongoing multilateral negotiations on services, some countries (United States, European Communities, Canada, Venezuela, Chile and Norway) have tabled proposals on energy services at the WTO. They aim at a further liberalization in the energy services sector.

* A discussion on this subject is presented in Note by the UNCTAD Secretariat TD/B/COM.1/EM.16/2: Energy Services in International Trade: Development Implications, June 2001. See also Trade Agreements, Petroleum and Energy Policies (UNCTAD/ITCD/TSB/9), 2000.

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