Contributed by Schoenherr.
1. SUMMARY
In 2017, electricity and natural gas markets regulator E-Control initiated a process for the further development of the gas balancing model with the aim of increasing market liquidity. Together with industry representatives, E-Control developed a concept for the updated gas balancing model. The final concept will be implemented within the framework of the new Gas Market Model Ordinance 2020 (Gas-Marktmodell-Verordnung 2020, Federal Law Gazette II 2019/425, as amended) which is to replace the previous Gas Market Model Ordinance 2012 as of October 1, 2021. Due to the COVID-19 pandemic, the deadline was postponed to April 1, 2022. In addition to the introduction of integrated market area balancing (the balancing area covers transmission as well as distribution), this new decree also fundamentally restructures and streamlines the other contents of the ordinance with regard to network access, registration in the market area, and congestion management, etc.
The latest amendments on the gas market included the stipulation of new gas system usage charges, set out in the Gas System Charges Ordinance 2013 (Gas-Systemnutzungsentgelte-Verordnung 2013, Federal Law Gazette II 2012/309, as amended).
The Clean Energy for All Europeans legislative package provides the legal framework for the Austrian Renewable Energy Expansion Act (Erneuerbaren-Ausbau-Gesetz – EAG, Federal Law Gazette I 2021/150, as amended). The measures defined therein serve to comply with the national reference values for renewable energy. Austria aims to cover 100% of its total electricity consumption from renewable energy sources from 2030 onwards. To achieve this target, it is planned to increase annual electricity generation from renewable sources. In addition, the share of nationally produced renewable gas is to be increased. Therefore, the EAG regulates the conditions for promoting the production of electricity as well as gas (including hydrogen) from renewable energy sources. The EAG introduced an important innovation for renewable gas as well as hydrogen/synthetic gas production plants. Installations for the production of hydrogen/synthetic gas are now eligible to receive an investment grant if the plant has a capacity of at least 1 megawatts, only utilizes renewable electricity, and if the hydrogen/synthetic gas is not admixed into the natural gas grid. Renewable gas production plants that do not classify as plants for the conversion of electricity into hydrogen/synthetic gas are eligible to receive an investment grant if the renewable gas is fed into the gas grid or used directly for end consumption.
2. OVERVIEW OF THE COUNTRY’S OIL & GAS SECTOR
2.1. Legal framework – a brief outline of your jurisdiction’s oil & gas sector
The regulatory framework for the natural gas market is governed by the Austrian Gas Act (Gaswirtschaftsgesetz 2011 – GWG, Federal Law Gazette I 2011/107, as amended), while the search, exploration, and production of natural gas is regulated by the Mineral Resource Act (Mineralrohstoffgesetz – MinroG, Federal Law Gazette I 1999/38, as amended). Additionally, the MinroG applies to the exploration and production of oil within the whole of Austria. This act also regulates the search and exploration of geological structures which can be used as storage facilities, as well as the underground storage of natural gas without tanks and the purification of stored natural gas. The storage of natural gas in (non-)hydrocarbon-bearing geological structures is carried out by RAG Energy Storage GmbH and OMV Gas Storage GmbH.
According to Sec. 1 no. 10 in conjunction with Sec. 4 of the MinroG, oil is considered a federal state-owned mineral resource that is in the possession of the Austrian Federal State. Therefore, the Federal State has the right to search, explore, and produce oil and natural gas. The Federal State is authorized to transfer the exercise of these rights to individuals or legal entities, and to groups of persons, based on commercial law, who have the necessary technical and financial means to establish and operate such mining activities (MinroG – Sec. 69 para.1). Such contracts are concluded by the Federal Minister for Economic Affairs in consultation with the Federal Minister of Finance.
The construction and operation of oil pipelines and associated infrastructure are regulated in the Pipeline Act (Rohrleitungsgesetz, Federal Law Gazette I 1975/411, as amended). Austria is considered as a transit country for crude oil with two main oil pipelines crossing Austrian territory: (i) the Trans-Alpine Pipeline (Transalpine Oelleitung – TAL) transports oil from the Port of Trieste, Italy, to Austria; (ii) the Adriatic Sea-Vienna pipeline (Adria-Wien Pipeline – AWP) branches off from the Trans-Alpine Pipeline close to the Italian-Austrian border and pumps the imported crude oil intended for the domestic market from Trieste directly to the refinery in Schwechat.
The Austrian natural gas market has been fully liberalized since October 1, 2002. By January 2013, a new gas market model was introduced through which the national and transit pipeline systems were merged into three market areas, i.e. East, Tyrol, and Vorarlberg. The market areas are managed by the market area manager (Marktgebietmanager), who is designated by the TSOs active in the respective market area and whose responsibilities include non-discriminatory access, coordination, administration, and balancing of accounts of the respective market area. Furthermore, the GWG stipulates that a VTP must be set up to be used, inter alia, for cross-border trading (GWG – Sec. 68 para.1). The Central European Gas Hub (CEGH) in Baumgarten serves as the virtual trading point (VTP) for Austria and has evolved into one of the most important settlement centers for natural gas in Europe. The most important transmission pipelines for natural gas are the Trans-Austria Gasleitung (TAG) and West-Austria-Gasleitung (WAG). The Austrian gas market does not possess an LNG terminal due to obvious reasons. Currently, only one plant for the liquefaction of bio-gas is operated in Austria. It is considered a pilot project of RAG. The produced Bio-LNG is supplied to lorries.
In May 2018, the Federal Ministry of Sustainability and Tourism together with the Federal Ministry of Transportation, Innovation and Technology announced their energy transition policy called Climate and Energy Strategy #mission2030. The goal was set to a “decarbonized energy supply by 2050.” However, in December 2019, the Austrian Federal Government committed to achieving carbon neutrality already by 2040. Therefore, the Austrian Federal Government is committed to phasing out fossil energy to enhance decarbonization. In the future, a significant share of natural gas will be replaced by renewable gas (Greening the Gas). The Austrian Federal Government aims to inject 5 terawatts of renewable gas into the Austrian gas grid by 2030. Furthermore, research is being done regarding the technical possibilities of carbon separation and storage during the production of natural gas, resulting in “blue” hydrogen, which is not CO2-free, but low in carbon.
In March 2021, the BMK published a draft version of the EAG. By now, the EAG is fully in force and provides the organizational framework for investments to support Austria’s energy transition by 2030. Investments in existing and future renewable gas production plants will contribute to an increase in domestically produced renewable gas. To assist market participants with the production of renewable gas, a service agency for renewable gases will be implemented.
Most recently, the EU Commission finalized the draft of a Taxonomy Complementary Delegated Act (EU Taxonomy), which will classify the treatment of natural gas as well as nuclear activities as climate neutral. Austria’s Ministries are criticizing the EU Commission’s proposal to label investments in natural gas as “climate-friendly.” Therefore, Austria is considering filing a lawsuit against the EU Commission to prevent such investments from being included in the EU Taxonomy.
Furthermore, E-Control aims to establish an integrated balancing scheme for the entire natural gas market area without systematic separation between transmission level and distribution area. This should lead to a decrease in contractual and operational complexity. The final concept will be implemented within the framework of the new Gas Market Model Ordinance 2020.
2.2. Domestic oil & gas production and imports/exports
As stated above, the relevant regulations regarding oil and gas production are set out in the MinroG.
The Austrian natural gas market is highly dependent on imports from other countries, such as Russia, Norway, and Germany. The domestic production of natural gas dropped by 17.7% or approximately 1.8 terawatts to a total of only 8,310 terawatts in 2020. In the same year, the net import of gas amounted to 484.2 terawatts, while the net export amounted to 414.8 terawatts.
In 2020 the percentage of oil imports amounted to 92%. Therefore only 8% of the crude oil processed came from domestic sources. Total domestic oil consumption in 2020 amounted to around 9.8 megatonnes of oil equivalent. This means a dramatic decrease of 14.8% compared to the previous year.
The Austrian energy supply is based on a balanced mix of energy sources. In the long run, the importance of fossil energy sources has been declining in favor of renewable energy sources. This trend is also true for gas consumption but is slightly less distinct. While the share of gas (mixed gas and natural gas) in 2016 accounted for 20.9% of the gross inland energy consumption, it rose slightly to 22.4% in 2017 and then fell again to 21.8% in 2018. In 2020, the decline of natural gas in the gross domestic energy consumption continued, ending up at approximately 18.4%. Natural gas and oil are imported via pipelines. The Austrian gas market does not possess an LNG terminal for obvious reasons. Currently, only one bio-gas liquefication plant is operated in Austria. It is considered a pilot project of RAG. The produced Bio-LNG is supplied to trucks.
2.3. Foreign investment and participation
According to the Foreign Trade Act (FTA, Aussenwirtschaftsgesetz – AussWG, Federal Law Gazette I 2011/26, as amended), acquisitions of (at least) 25%, or of controlling interests in companies in specific industries, including in energy, by foreign investors (i.e. non-EEA and non-Swiss persons) require approval (FTA approval) by Austria’s Federal Ministry for Digitization and Economic Affairs. The FTA approval is a so-called ex ante approval and applies in the case of the acquisition of energy supply and network companies. It requires the foreign investor to file for approval prior to entering into a legally binding agreement regarding such acquisition. Any acquisition entered into without required approval is invalid and, if implemented, can be unwound. FTA approval is only required for direct investments by foreign investors. Therefore, as a rule, indirect investments by foreign investors via EU/EEA or Swiss entities are not captured by the approval regime, since EU law would not allow such investment restrictions. Accordingly, if the acquiring entity is domiciled within the EEA/EU or Switzerland, no FTA approval is required even if the acquiring entity’s (indirect) shareholder is a foreign Investor (so-called indirect investment) unless such a structure was implemented and used to circumvent the approval requirement. Indirect investments might trigger an ex officio review procedure aimed at suspicious circumvention structures. The ministry can initiate the review procedure in exceptional cases only. It requires (i) a reasonable suspicion that the investment structure was chosen in order to circumvent the FTA approval requirement, (ii) a reasonable suspicion that the circumvention results in a threat to certain public interests, such as public order and public security, and (iii) the absence of EU provisions conflicting with the application of the FTA approval requirement.
2.4. Protection of investment
The regulatory policy in respect to the oil and natural gas sector is especially influenced and affected by European law (Treaty on the Functioning of the European Union [TFEU] and secondary law adopted on the basis of the TFEU). Furthermore, Austria ratified the Energy Charter Treaty.
3. EXPLORATION OF OIL & GAS
3.1. Granting of oil & gas exploration rights
The exploration and production of oil and natural gas are regulated by the federal legislator in the MinroG. This act applies to the whole of Austria and not only regulates the exploration and production of oil and natural gas but also the search and exploration of geological structures that can be used as storage facilities. Additionally, this act contains provisions concerning the underground storage of natural gas without tanks and the purification of stored natural gas.
An Environmental Impact Assessment (EIA) has to be conducted if the exploration of oil or natural gas exceeds 500,000 cubic meters per day (reduced thresholds of 250,000 cubic meters per day apply to exploration fields located in a special protected area). The EIA approval, issued under the EIA Act, replaces the approval under the MinroG (one-stop shop).
On an administrative level, the competent authorities are the Federal Ministry of Climate Action, Environment, Energy, Mobility, Innovation and Technology (Bundesministerium fur Klimaschutz, Umwelt, Energie, Mobilitat, Innovation und Technologie – BMK). In case an EIA is required, the respective provincial government of the province where the project is located is the competent authority (Landesregierung). Applicants are entitled to appeal against decisions of the BMK at the Constitutional and/or the Administrative Court. The EIA decision, issued by the State Government, can be appealed at the Federal Administrative Court (Bundesverwaltungsgericht) and thereafter at the Constitutional and Supreme Administrative Court.
3.2. Foreign exploration
The Austrian Federal State has the right to search, explore, and produce oil and natural gas (MinroG – Sec. 68 para. 1) since oil and natural gas are considered “federally owned mineral resources” according to Sec. 1 No. 10 in conjunction with Sec. 4 of the MinroG. The same applies to the search of hydrocarbon-bearing geological structures that are to be used as storage facilities for oil or natural gas.
However, the Federal State is authorized to transfer the exercise of rights under Sec. 68 para. 1 of the MinroG to individuals or legal entities and to groups of persons based on commercial law who dispose of necessary technical and financial means to establish and operate such mining activities (MinroG – Sec. 69 para. 1). The transfer of these rights is governed by a civil law contract. The latter determines the general rights and obligations as well as the consideration for the transfer of such rights, e.g. appropriate remuneration or interest payments for the used area. These contracts are concluded by the BMK in coordination with the Federal Ministry of Finance. Civil courts are competent to adjust any arising legal differences.
The authorization to search and explore non-hydrocarbon-bearing geological structures that will be used as storage, as well as the storage therein, can be transferred by contract. This transfer must be notified to and verified by the authority. The authority will authorize the transfer of storage rights if the acquirer disposes of necessary technical and financial means for storage in such structures.
3.3. Stages of the exploration process
The search, exploration, and production of oil and natural gas and the search for geological structures to be used as storage facilities depend on work plans. Work plans will provide, e.g. information concerning the purpose, scope, mode, and time of work as well as safety measures and the names of the responsible persons. The mining beneficiary must notify the set-up of a mining establishment or an independent section of a mining establishment to the authority. According to Sec. 119 para. 1 of the MinroG, a permit must be obtained from the authorities for the construction (erection) of surface mining facilities and of tunnels, shafts, bores with boreholes of a 300 meters depth, and probes of a 300 meters depth originating from the surface that serve the purposes of mining. A mining facility is defined as an artificial independent local object that is used for the search, production, purification in operational connection with the search and production of natural gas, and the search and exploration of geological structures used for the underground storage of natural gas without tanks and operational purification in connection with storage. An authorization for a mining facility can only be granted if (i) it is constructed (set up) on the property of the applicant, or on the property of another person with the owner’s consent, or on the basis of a legally binding decision of the authority (MinroG – Sec. 148 et seq.), (ii) according to the “best available technology,” the planned mining facility does not emit any avoidable emissions, (iii) on the basis of medical or other scientific evidence which may be considered, the life or health of persons is not endangered and there is no unreasonable impairment of persons, (iv) no danger for items not provided for use to the applicant and no impairment of the environment and water bodies beyond reasonable limits are to be expected, and (v) either the operation of the mining installation will not give rise to waste that is avoidable or non-recoverable according to the best available techniques or, where prevention or recovery of the waste is not economically justifiable, if it is ensured that the waste produced is properly disposed of. Additionally, public interests must be taken into consideration. The authority has the power to impose obligations, terms and conditions, and limitations when granting authorization. Generally, an operating approval is not required (MinroG – Sec. 119 para. 8).
3.4. Obligatory state participation
Austria’s crude oil and natural gas reserves are legally owned by the Austrian Federal State (MinroG – Sec. 1 sub-para. 10 and Sec. 4 para.1 sub-para. 2). However, the Federal State may, in exchange for appropriate remuneration according to Sec. 69 of the MinroG, transfer its rights to extract and store oil and natural gas to individuals or legal entities. In Austria, the companies OMV, RAG, and ADX VIE (since 2020) carry out oil and natural gas development activities. Currently, the Austrian Federal State, via the Oesterreichische Beteiligungs AG – OEBAG has a 31.5% stake in OMV. In addition, various Austrian federal provinces are indirectly involved in RAG, whereby the majority share in RAG is held by EVN AG.
Geological data is consolidated in the “mining information system” (MinroG – Sec. 185). The right of inspection exists insofar as this is necessary to protect a legitimate interest in the information that outweighs the interests of the person concerned in maintaining confidentiality.
3.5. Risks to be considered
Worthy of note are the provisions regarding the transfer of rights according to Sec. 69 of the MinroG. The transfer of rights is subject to the availability of the necessary technical and financial resources.
4. PRODUCTION OF OIL & GAS
4.1. Granting of oil & gas production rights
Like exploration, the production of oil and gas is regulated by the MinroG.
According to Sec. 119 para. 1 of the MinroG, a permit must be obtained from the authorities for the construction (erection) of surface mining facilities. Parties in the approval process are (i) the applicant for the permit, (ii) the owners of the land on whose surface or in whose near-surface area the mining installation is to be erected and operated, and (iii) neighbors. For the purposes of this provision, these are all persons who could be endangered or harassed by the production (construction) or operation (use) of the mining facility, or whose property or other rights could be endangered. Other mining permittees are parties of the approval process, insofar as they may be hindered by the (new) mining facility in the exercise of their existing mining permissions. Prior to the granting of a permit, the administrative authorities appointed to safeguard public interests will be heard.
Furthermore, changes in a licensed mining facility require a permit.
Within the framework of the transfer of production rights by the state (MinroG – see Sec. 69 para.1), facility operators are obliged to dispose of necessary technical and financial means for the establishment and management of a mining company. Consequently, civil law contracts with the applicants provide for securities or guarantees related to oil and natural gas development. Existing contracts are not disclosed to the public. If the development activities are linked to the operation of landfills, applicants must provide securities or guarantees for potential restorations of the landfills to the competent authority. In addition, rightsholders must present a waste disposal plan two weeks prior to the commencement of operations to the ministry (MinroG – Sec. 117a).
Apart from authorizations based on the MinroG, several other authorizations (of different authorities) may be required, depending on the specific project. The obligation to obtain such authorizations may arise, e.g. from one of the provincial Nature Conservation Acts or the Water Rights Act (Wasserrechtsgesetz 1959, Federal Law Gazette I 1959/215, as amended). If a specific project is subject to an EIA, the competent authority issues a single decision under the EIA Act (Umweltverträglichkeitsprüfungsgesetz 2000, Federal Law Gazette I 1993/697, as amended), covering all necessary licenses (one-stop shop).
The EAG introduced an important innovation for renewable gas as well as hydrogen/synthetic gas production plants. Installations for the production of hydrogen/synthetic gas are now eligible to receive an investment grant if the plant has a capacity of at least 1 megawatt, only utilizes renewable electricity and if the hydrogen/synthetic gas is not admixed into the natural gas grid (EAG – Sec. 62). Renewable gas production plants, which do not classify as plants for the conversion of electricity into hydrogen/synthetic gas are eligible to receive an investment grant if the renewable gas is fed into the gas grid or used directly for end consumption (EAG – Sec. 61).
4.2. Foreign production
As stated above, the Austrian Federal State has the right to search, explore, and produce oil and natural gas (MinroG – Sec. 68 para. 1). However, this exclusive right of the Federal State can be transferred to individuals or legal entities as well as to groups of persons based on commercial law who dispose of necessary technical and financial means to establish and operate such mining activities (MinroG – Sec. 69 para. 1). According to Sec. 114 of the MinroG, the change in the person of the mining licensee will not affect the validity of permits, approvals, and authorizations.
4.3. Stages of the production process
According to Sec. 119 para. 1 of the MinroG, a permit must be obtained from the authorities for the construction of surface mining facilities. A mining facility is defined as an artificial independent local object used for the search, production, purification in operational connection with the search and production of natural gas, and also the search and exploration of geological structures used for the underground storage of natural gas without tanks and the operational purification in connection with storage. An authorization for a mining facility can only be granted if the requirements of Sec. 119 of the MinroG are met. For more details see Section 3.3.
4.4. Obligatory state participation
The two companies carrying out oil and natural gas development activities in Austria are OMV, a partly federal state-owned company, and Rohoel-Aufsuchungs AG (RAG). The only oil refinery in Austria is in Schwechat and is operated by OMV.
As stated above, the exercise of specific rights regarding oil and natural gas development (production) is transferred by contract (MinroG – Sec. 69 para. 1). This is done against the payment of an appropriate consideration.
Austrian law does not stipulate special restrictions on the export of oil or natural gas production. In the event of a crisis, however, certain measures (including export restrictions) may be taken based on the Energy Steering Act 2012 (Energielenkungsgesetz, Federal Law Gazette I 2013/41).
4.5. Risks to be considered
Austria implemented the Stocks of Crude Oil and Petroleum Products Directive into a number of national acts and regulations, to mitigate an energy supply crisis in the European Union by maintaining a minimum stock level, maintaining information on these stock levels, and ensuring the accessibility and availability of the stocks. To ensure this, oil producers must submit monthly oil production data to the ministry (Oil Statistics Regulation – Sec. 3). Similar obligations are stipulated to gas producers in Sec. 5 para. 2 of the Gas Statistics Regulation.
5. TERMINATION OF PRODUCTION OF OIL & GAS
5.1. Abandonment and decommissioning
According to Sec. 119 para. 14 of the MinroG, the abandonment of a mining facility must be notified to the competent authority by the owner of a mining facility. This notification requirement does not apply if the abandonment of a mining facility has been indicated to the authority in connection with a closure plan. This plan needs to be approved by the authority. The latter is finally empowered to prescribe safety measures in this regard.
5.2. Environmental and HSE consideration
Apart from authorizations based on the MinroG, several other authorizations (of different authorities) may be required, depending on the specific project. The obligation to obtain such authorizations may arise, e.g. from one of the provincial Nature Conservation Acts or the Water Rights Act. If a specific project is subject to an EIA, the competent authority issues a single decision under the EIA Act, covering all necessary licenses (one-stop shop).
6. SAFETY OF OIL & GAS EXPLORATION AND PRODUCTION
6.1. International treaties to which the jurisdiction is a party
The regulatory policy in respect to the oil and natural gas sector is especially influenced and affected by European law (Treaty on the Functioning of the European Union [TFEU] and secondary law adopted based on the TFEU).
6.2. Offshore Safety Directive
No, there is no OSD implemented in the Austrian regulatory framework.
7. IMPORT, EXPORT, AND SALES OF OIL & GAS
7.1. Import and Export of oil & gas
Austrian law does not provide for special restrictions on the export of oil or natural gas production. In the event of a crisis, however, certain measures (including export restrictions) may be taken based on the Energy Steering Act 2012 (Energielenkungsgesetz, Federal Law Gazette I 2013/41).
Import activities of oil for commercial purposes from other EU Member States must be reported to Austrian customs (Oil Provisionment Act 2012 – Sec. 11 para. 1) (“Erdoelbevorratungsgesetz – EBG”, Federal Law Gazette I 2012/78, as amended). The competent Federal Ministry (i.e. the BMK) is then notified by the Austrian customs and is in charge of verifying the completeness and accuracy of the imported quantities of oil and oil products, as registered by the importer.
According to Sec. 5 para.1 of the Oil Provisionment Act 2012, importers of oil and oil products must hold 25% of the net import amount of the preceding year in domestic stock as an emergency reserve from July 1 to June 30 of the subsequent year. This percentage may be amended by the competent Federal Minister to meet international obligations.
However, transporting fuel oils in main or reserve tanks of vehicles is not subject to regulation under the Oil Provisionment Act 2012.
7.2. Transportation
Natural gas is transported via the TAG (Trans-Austria Gasleitung) and WAG (West-Austria-Gasleitung) pipeline systems (the major transmission lines in Austria), the South East Gas Pipeline (SOL), the Hungarian-Austrian Gas Pipeline (HAG), the March-Baumgarten Pipeline (MAB), the Kittsee- Pipeline (KIP), the Austria-Bavaria-gasline (ABG) and the PENTAWest pipeline (PW). WAG runs from Baumgarten an der March on the Austrian-Slovak border through Lower Austria and Upper Austria to Oberkappel on the border with Germany. WAG is operated by GCA (the shareholders are Verbund with 51% and AS Gasinfrastruktur with 49%). The TAG pipeline comprises three parallel pipelines and the auxiliary equipment for each, including compressor stations and entry/exit points. TAG runs from Baumgarten an der March on the Austrian-Slovak border, through Lower Austria, Burgenland, Styria, and to Arnoldstein in Carinthia on the border between Austria and Italy. TAG is owned and operated by Trans Austria Gasleitung GmbH (GCA and Italian TSO Snam are shareholders). Both GCA and Trans Austria Gasleitung GmbH have been certified by E-Control as TSOs under the ITO model. Distribution lines are operated by several regional and municipal Distribution System Operators (DSOs).
The two main oil pipelines crossing the Austrian territory are the TAL, transporting oil from Italy to Germany and the Czech Republic via Austria, and the AWP, which branches off from the TAL and transports oil from the Austrian-Italian border to the refinery in Schwechat. The TAL pipeline is owned by a consortium of 10 oil companies, including OMV and Royal Dutch Shell. The Austrian part of the TAL is operated by Transalpine Oelleitung in Oesterreich GmbH. The AWP pipeline is owned and operated by OMV Refining & Marketing GmbH.
The regulatory framework for the construction and operation of transportation pipelines and storage facilities of natural gas is set out in the GWG . In general, the construction, expansion, fundamental changes, and operation of natural gas pipelines are subject to approval of the authority (see GWG –Sec. 148). Within the framework of such an approval procedure, the authority examines the potential impacts of planned natural gas pipeline systems on life, health, rights in rem, neighbors, and the environment. The authority further considers compliance with safety regulations and relevant technical rules and ensures that the waste heat from the compression of natural gas is supplied to a utilization concept to the extent that is technically possible and economically reasonable (GWG – Sec. 135). The competent authority must be notified of any completion or permanent shutdown of pipelines. Generally, the operator of natural gas pipelines may start operations with the notification of completion. Depending on the specific project, several other authorizations and approvals may be required (e.g. resulting from one of the provincial Nature Conservation Acts). If a specific project is subject to an EIA, the competent authority issues a single decision under the EIA Act, covering all necessary authorizations (one-stop shop).
The operation of a natural gas pipeline is subject to a license issued by the regulatory authority – E-Control (GWG – Sec. 119). The license must be granted if certain license conditions are fulfilled (e.g. third-party liability insurance). The authority may impose obligations and terms or grant the authorization temporarily (GWG – Sec. 43). In general, the TSO must comply with one of the unbundling models set out in the Gas Directive 2009/73/EC (OU, ISO, ITO, or ITO+). Gas storage pipes and spherical gas storage tanks also require a license under the GWG. Gas storage facilities are subject to the approval requirements under the MinroG.
The construction and operation of oil pipelines and associated infrastructure are regulated in the Pipeline Act (Rohrleitungsgesetz, Federal Law Gazette I 1975/411, as amended). According to Sec. 3 of the Pipeline Act, as a rule, the transportation of goods via a pipeline, as well as the construction and operation of a pipeline, is subject to a concession issued by the provincial governor. If the pipeline crosses more than one federal province or the national border, the Federal Minister is the competent authority. In addition, a permit for the construction and operation of the pipeline must be obtained (Pipeline Act – Sec. 17). This permit is granted on the basis of a technical construction plan submitted by the project developer. Besides the permit under the Pipeline Act, further regulatory permits (e.g. in accordance with the Water Act or Waste Management Act, etc.) may have to be obtained from the respective competent authorities.
Access to the natural gas transportation grid is subject to regulated third-party access (TPA). Therefore, GTC for access to the grid must be approved ex ante by the regulatory authority, which also sets the tariffs for access to the domestic transport system. Tariffs are paid by the end-consumers (postage stamp tariff). The tariffs for transmission system operators will be calculated by applying a methodology that is subject to approval by the regulatory authority – E-Control – by official decision and must comply with the requisites of Article 13 of Regulation (EC) No. 715/2009 (Gas Directive) as well as Regulation 2017/460 (Tariff Network Code). Upon request of E-Control, the methodology will be adjusted or redesigned. The tariffs resulting from the application of the approved methodology are enacted by means of a regulation of the regulatory authority and are published on the internet as well as in the Federal Law Gazette (Bundesgesetzblatt).
Unlike in the gas sector, the terms to access the oil pipeline network are not regulated. The parties are free to agree on such terms in contractual agreements. Competition law may constitute a limitation to the margin of discretion of oil pipeline network operators.
7.3. Land rights
Under Sec. 144 para. 1 of the GWG, the authority will authorize the temporary use of third-party land on application with regard to preparatory work in connection with the construction, expansion, or conversion of a natural gas pipeline system. The application will state the nature and duration of the intended preliminary works and provide a work plan. The applicant is legally entitled to obtain such a decision (only) if the preliminary works begin within one year of the application being filed. The party authorized to carry out preliminary works must duly compensate the owners of the properties concerned, any parties who have a right in rem on these properties (except mortgage creditors), and any parties who hold mining licenses for any restrictions they had at the time when the permit was granted (GWG – see Sec. 144 para. 9). Property owners and any other parties who have a right in rem on a property may be expropriated or restricted in these property rights, provided this is required with a view to construct a pipeline (transmission or distribution line) and the expropriation or restriction is in the public interest. A public interest will be deemed to exist if a provision for such a natural gas pipeline facility has been laid down in the long-term plan or the network development plan. In such a case, the regulatory authority – E-Control – will confirm the existence of a public interest by official decision. Where a natural gas pipeline facility is not included in the long-term plan or network development plan, a public interest will be deemed to exist if the construction of such a facility is necessary to achieve the objectives of the GWG. For natural gas line facilities with a pressure range up to and including 0.6 megapascals, private property may only be expropriated if no public land is available in the area concerned or if the natural gas undertaking cannot, for economic reasons, be reasonably expected to use public land.
For the construction of oil pipelines, the Pipeline Act provides for the right of the project developer to access foreign land in order to conduct preliminary studies for the preparation of the project (Pipeline Act – Sec. 7 para. 1). Furthermore, the authority will, upon application by the project developer, order the expropriation of a property, if the permanent positioning of the pipeline at a certain location is required either for technical reasons or because the cost of rerouting the pipeline would be disproportionate. Expropriation may include easement rights or the transfer of the property to the project developer. However, the transfer of the property must be a measure of last resort (Pipeline Act – Sec. 27).
7.4. Access and integration
The Austrian natural gas transportation network is disconnected and consists of three market areas. The transportation pipelines of these market areas are not connected within Austria. Therefore, transportation of natural gas between different control areas, e.g. from the Eastern part of Austria to Tyrol, is only possible by using foreign networks (e.g. via Germany). A market area manager is established for each of the market areas. The TSOs are obliged to cooperate with other system operators. For instance, they must exchange information and data in order to set up a long-term network development plan. Moreover, system operators are obliged to conclude uniform interconnection point agreements with each other for all interconnection points between their systems. Such interconnection point agreements at interconnection points will be concluded in consultation with, and following, the specifications of the market area manager and the distribution area manager, as applicable. The same will apply for interconnection point agreements with system operators in other countries and the operators of storage or production facilities.
Access to natural gas transportation pipelines will be granted by the DSO under non-discriminatory terms and approved GTC and regulated tariffs. DSOs are obliged to enter into civil law contracts with consumers on the connection to the natural gas distribution system and system utilization under approved GTC within their distribution area (compare GWG – Sec. 27 and 58). Network access may be denied by the system operator in writing for the reasons stipulated in Sec. 33 para. 1 of the GWG.
There are two main oil pipelines crossing the Austrian territory: the TAL, transporting oil from Italy to Germany and the Czech Republic via Austria, and the AWP, which branches off from the TAL and transports oil from the Austrian-Italian border to the refinery in Schwechat. Unlike in the gas sector, access to oil pipelines is not regulated. However, the central stockholding entity Erdoel-Lagergesellschaft GmbH (ELG) is required to conclude agreements on the assumption of stockholding obligations by regulation (Oil Provisionment Act – Sec. 8 para. 5).
7.5. Gas transmission and distribution
The Austrian gas transmission grid spans over approximately 1,700 kilometers. The two major natural gas pipeline transmission systems are the Trans-Austria Gasleitung (TAG) and the West-Austria-Gasleitung (WAG). The TAG is operated by Trans Austria Gasleitung GmbH, which is held by the Italian TSO Snam S.p.A. (Snam) (84.47%) and GCA from Austria (15.53%). The WAG gas pipeline system is owned by GCA. The shareholders of GCA are AS Gasinfrastruktur GmbH with 49% (a joint venture between Allianz Capital Partners of Germany [51%] and Snam [49%]) and Verbund with 51%. The total length of the Austrian distribution network reaches approximately 44,000 kilometers and is operated by various regional and municipal DSOs.
Domestic transmission and distribution networks are subject to regulated third-party access (TPA), which means that access is granted based on GTC, which are approved ex ante, and that tariffs are regulated.
The natural gas grid is divided into three market areas (East, Tyrol, and Vorarlberg), within which a market area manager, a distribution area manager, and a clearing and settlement agent are entrusted with providing system services. The market area manager will be designated by the transmission system operators. The market area manager will have, inter alia, the following responsibilities: (i) to ensure the establishment of non-discriminatory access to the virtual trading point; (ii) to manage the balance groups active in the market area; (iii) to coordinate system operations and the use of line pack, as well as the use of physical balancing energy together with the market area’s distribution area manager, mainly via the virtual trading point; (iv) to establish a uniform methodology for the calculation and announcement of capacity at the entry/exit points of the market area’s transmission network; (v) to organize the establishment and operation of the online platform for offering capacity; (vi) on the basis of a variety of load-flow scenarios and together with the transmission system operators and the distribution area manager, to draw up a common forecast of the capacity need and utilization in the market area’s transmission network over the next 10 years; (vii) to draw up a coordinated network development plan; (viii) to coordinate measures to overcome physical congestions with the distribution area manager, the system operators and storage system operators in the market area; and (ix) to coordinate the nomination procedure for the transmission system, including the exchange of nominations with the operator of the virtual trading point.
Network users must be a member of a balance group or establish their own balance group. A balance group representative bears the responsibility for the balance group. He is obliged to develop schedules and transmit them to the clearing and settlement agent and the control area manager.
A license from the regulatory authority – E-Control – is required to operate a distribution network and must be granted if certain license conditions are fulfilled (e.g. third-party liability insurance). The authority may impose obligations and terms or grant the authorization temporarily (GWG – Sec. 43). DSOs are required to appoint an individual as technical director in charge of managing and supervising the operation of the system before the initial operation. Additionally, the system operator may appoint a managing director to carry out its function, who will be responsible to the authority for compliance with the provisions of the GWG (see GWG – Sec. 46). A DSO has to notify the appointment of these two persons to the authority.
DSOs are obliged to enter into civil law contracts with consumers on the connection to the natural gas distribution system and system utilization under approved GTC within their distribution area (i.e. a system usage charge set out by regulation (Systemnutzungsentgelte-Verordnung, see in detail GWG –Sec. 27 et seq. and Sec. 58 et seq.). However, access to the distribution system may be denied by the DSO under certain conditions, as provided by law. The refusal must be notified in writing (GWG – Sec. 33). The regulatory authority – E-Control – decides upon appeals regarding the denial of access. Access may be denied by the system operator under certain conditions, e.g. extraordinary system conditions, insufficient system capacity, or insufficient interconnection of systems. If network access is refused due to lack of network capacity or lack of network integration for transports in the distribution network, the party entitled to network access may apply for capacity expansion. The distribution area manager will take due account of the capacity need indicated in the application when drawing up the long-term plan. Capacity expansion applications will be approved under certain conditions. The costs arising from the capacity expansion are allocated to the grid users via the regulated transport tariffs. The regulated tariffs are based on the allowed costs of the system operators (to be calculated in accordance with the GWG).
According to Sec. 72 of the GWG, the following tariffs for the usage of the distribution networks are charged:
(i)a system utilization charge;
(ii)a system admission charge;
(iii)a system provision charge;
(iv)a metering charge; and
(v)supplementary service charges.
The regulatory authority (E-Control) will set the distribution system charges listed above under (i), (iii), (iv), and (v), with the charges under (i), (iii), and (v) being fixed rates, by regulation. The charge under (iv) will be capped. The tariffs for the transmission system charges listed under (i) to (iii) at the entry and exit points concerned will be determined by applying a methodology to be approved by E-Control upon a proposal by the transmission system operators and will be enacted by regulation.
8. TRADING
8.1. Trading license
Natural gas is traded through the Virtual Trading Point (VTP). The VTP is a notional point in a market area at which market participants may trade natural gas within the market area after feed-in and before feed-out even without having the right to system access for the market area. Access to the VTP is subject to the operational rules of the market area manager and the transmission system operators, in line with the market rules. The VTP is not a physical entry or exit point but enables natural gas buyers and sellers to purchase and sell natural gas without the need to book capacity. The operator of the virtual trading point, who is designated to the regulatory authority by the market area manager, is independent in terms of legal form, organization, and decision-making, in particular from the vertically integrated natural gas undertaking. The VTP is operated by one of the most important gas trading platforms currently: the Central European Gas Hub AG, which is a 65% subsidiary of OMV Gas & Power GmbH. CEGH provides hub services as well as gas auctions. Therefore, natural gas in Austria is mainly traded at the CEGH. Trading can either be done OTC or on the gas exchange platform. In both cases, the gas trader must register with CEGH and conclude a CEGH Membership Agreement.
CEGH Gas Exchange is offered through the pan-European PEGAS platform and operated under the Powernext rulebook. The European Commodity and Clearing AG is the clearing agent and clearing house.
According to the GWG, natural gas traders are natural or legal persons buying or selling natural gas without carrying out the function of transmission or distribution within or outside the system in which such a natural gas trader is established. Natural gas traders buying or selling natural gas in the federal territory of Austria must notify their activities to the regulatory authority – E-Control. REMIT prohibits insider trading and attempted or actual market manipulation in wholesale energy markets. Furthermore, REMIT imposes reporting requirements for trades. According to Sec. 10a of the GWG, market participants who are obliged to publish inside information pursuant to Article 4 of EU Regulation No. 1227/2011 are additionally obliged to inform E-Control simultaneously.
The European Market Infrastructure Regulation (EU Regulation No. 648/2012 of the European Parliament and of the Council of July 4, 2012, on OTC derivatives, central counterparties (CCPs), and trade repositories (TRs) – EMIR) entered into force on August 16, 2012. If the energy trader exceeds the clearing threshold hereunder, the clearing obligation, the risk mitigation techniques, and the reporting obligations must be fulfilled. Below the clearing threshold, only the reporting obligation and certain risk mitigation techniques are applicable.
According to the Data Storage Regulation (Energiegrosshandels-Transaktionsdaten-Aufbewahrungsverordnung, Federal Law Gazette II 2012/337), a regulation on wholesale energy transaction data storage, energy traders are obliged to keep data of their transactions for five years. This data includes the identity of the buyer/seller, the energy exchange or other trading venue on which the transaction was effected, trading day and time of the transaction, contract specifications, etc. This obligation applies for OTC trading as well as for exchange trading. The data will be made available to E-Control, the Austrian Federal Competition Authority, and the European Commission at any time as required.
8.2. Products
The GWG provides for the establishment of a virtual trading point system. The VTP is a notional point in a market area at which market participants can trade natural gas even without having the right to system access for the market area. The VTP is not a physical entry or exit point but enables natural gas buyers and sellers to purchase and sell natural gas without the need to book capacity; therefore, trading of unbundled products is possible.
The VTP is operated by the Central European Gas Hub.
9. COMPETITION
9.1. Authorities
On an administrative level, E-Control is competent for market regulation. The competence of other authorities being responsible for competition aspects such as the Federal Competition Authority (FCA), the Federal Cartel Attorney, and the Cartel Court remains unaffected.
Primary legal sources for the determination of whether the conduct was anti-completive are (i) the Austrian Anti-Trust Act (Kartellgesetz, Federal Law Gazette I 2005/61, as amended), the GWG, and the Energy Regulatory Authority Act (Energie-Control-Gesetz - E-Control-G, Federal Law Gazette I 2010/110, as amended), as well as (ii) Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), containing the EU rules on competition.
9.2. Anti-competitive actions
The regulator must observe the criteria of the Austrian Anti-Trust Act, Arts 101 and 102 of the TFEU, as well as the GWG and the Energy Regulatory Authority Act.
One of the regulator’s key tasks is to exercise market oversight. If the regulator identifies any competition violations, it has the power to instruct the respective market participant by way of official decision to act in compliance with the legal obligations. In carrying out these tasks, the regulator must seek agreement between the parties involved (E-Control-G – Sec. 24 para. 2).
According to the Austrian Merger Control Regime, set out in the Austrian Anti-Trust Act, a transaction must be notified to the FCA if it meets the requirements stipulated in Sec. 7 of the Austrian Anti-Trust Act, as well as Sec. 9 para. 1 of the Austrian Anti-Trust Act. Concentrations that do not meet the turnover thresholds of Sec. 9 para. 1 of the Austrian Anti-Trust Act nevertheless must be notified, provided Sec. 9 para. 4 of the Austrian Anti-Trust Act is applicable.
10. STABILITY CLAUSE AND DISPUTE RESOLUTION
10.1. Stability clause
There is no stability clause for oil and gas companies in Austrian law.
10.2. Compulsory dispute resolution procedure
No compulsory dispute resolution procedures apply between the regulator and corporations in the oil or natural gas sector.
10.3. International treaty protection
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified in 1961, and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States was ratified in 1971.
Generally, there is no special difficulty in litigating or seeking to enforce judgments or awards, against Government authorities or State organs.
We are not aware of any instances in the oil and natural gas sector when foreign corporations have successfully obtained commercial judgments or awards against Austrian Government authorities or State organs pursuant to litigation before domestic courts. However, Austria’s legal system is globally recognized as being independent and impartial. Thus, generally, there is no reason why foreign corporations should not be able to obtain judgments or awards against the Austrian Government or State organs.
Acknowledgments:
Bernd Rajal
Felix Weber
