1. THE CHALLENGE OF GLOBALIZED NATURAL GAS MARKETS THE NATURAL GAS MARKET IN EUROPE 15 MAY 2012 Presented by: RAUL YUNTA HUETE HYDROCARBONS DIRECTOR COMISIÓN NACIONAL DE ENERGÍA. SPAIN STRIKING A BALANCE IN THE MIDST OF CHANGE May 13-16, 2012 Québec City, Québec (Canada)

2. THE NATURAL GAS MARKET IN EUROPE INDEX 1. Natural gas regulation in Europe. Legal framework Institutions The Madrid Forum 2. Current status of the internal gas market in Europe. From 27 markets to one. The gas target model. 3. One example case: Spain

3. THE NATURAL GAS MARKET IN EUROPE 1.Natural gas regulation in Europe: Legal Framework Existing legislation. Three Gas EU Directives on internal market completion o (1998, 2003, 2009) Transposed into Laws in every EU Member State EU Gas Regulations o Direct application to every EU Member State. Framework Guidelines and Network Codes o Detailed provisions to define markets and systems functioning Guidelines of good practices o Voluntary basis

4. THE NATURAL GAS MARKET IN EUROPE 1.Natural gas regulation in Europe: Legal Framework Main principles of the European Regulation: o Equal market access conditions Criteria: Transparency, fair competition and non discrimination Effective separation of network activities from production and supply activities: TSOs and DSOs effective unbundling. Harmonized network access rules (FGs and NCs) Regulated TPA tariffs for the use of the network. o Consumers freely choose of supplier / Suppliers freely deliver to customers o Clear roles and responsibilities: Increase Security of Supply: regional cooperation of TSOs More functions and independence for NRAs

5. THE NATURAL GAS MARKET IN EUROPE 1.Natural gas regulation in Europe: Institutions o Regulatory organisms: European Commission, ACER, CEER, NRAs Different roles and competences at defining and applying the relevant regulation o Associations and stakeholders representatives: ENTSOG, GIE, GLE, GSE, EFET, EUROGAS, IFIEC, ….. Consultative roles, lobby activities.

6. THE NATURAL GAS MARKET IN EUROPE ENTSOG: European gas transmission system operators group

7. THE NATURAL GAS MARKET IN EUROPE 1.Natural gas regulation in Europe: The Madrid Forum The European Gas Regulatory Forum, Madrid Forum, discusses the issues regarding the creation of a true internal gas market: cross-border trade, tarification, allocation and management of capacity and other technical and commercial barriers to the creation of a fully operational internal gas market. The participants include national regulatory authorities, Member States governments, the European Commission, transmission system operators, gas suppliers and traders, consumers, network users, and gas exchanges. Since 1999 the Forum meets twice a year in Madrid

8. THE NATURAL GAS MARKET IN EUROPE 2. Current status of the internal gas market in Europe: From 27 markets to one. Source: Eurogas European countries gas consumption in 2009 and 2010

9. THE NATURAL GAS MARKET IN EUROPE East European countries are highly dependent on Russian gas imports Central European countries hold more developed and interconnected networks: diversified supplies from Russia, Norway and The Netherlands North African supplies cover part of the demand of Mediterranean countries. New interconnections are expected to bring this gas to the central European countries. LNG market is not equally developed. Spain and UK stand for the highest provisions. 2. Current status of the internal gas market in Europe: From 27 markets to one.

10. THE NATURAL GAS MARKET IN EUROPE The European Union is highly dependent on gas produced outside of its borders Security of supply has been historically met through long-term contractual arrangements This LT arrangements are with producers outside of the EU rather than on wholesale gas markets in the EU. It is expected that 70% of European gas supplies in 2030 will come from outside the EU A well functioning internal market is crucial 2. Current status of the internal gas market in Europe: From 27 markets to one. Source: Eurogas

11. THE NATURAL GAS MARKET IN EUROPE 2. Current status of the internal gas market in Europe: The Gas target Model 2014 as the deadline for the completion of the gas internal market. The Gas Target Model should provide a framework for the development of the EU gas market, giving particularly support for the guidelines and network code development. The key challenge is to put in place effective rules for facilitating cross-border trading, hubs development and market integration between Member States.

12. THE NATURAL GAS MARKET IN EUROPE The Gas target Model Improve effectiveness by realising economic pipeline investments Vision for a sustainable IEM in gas Pillar 1: Enable functioning wholesale markets Pillar 2: Tightly connect markets Pillar 3: Enable secure supply patterns Pillar 1: Enabling functioning wholesale markets – hubs- so that every European final customer is easily accessible from such a market. Pillar 2: Fostering price convergence between the functioning wholesale markets by tightly connecting the markets. Facilitate cross-market supply and trading. Pillar 3: Enabling the establishment of secure supply patterns for the functioning wholesale markets. FGs and NCs on CAM, Balancing, Tariffs, CMP, etc. have the aim that capacity between wholesale functioning markets will be used as effectively as possible leading to improved price alignment between the markets and improved SoS.

13. THE NATURAL GAS MARKET IN EUROPE The Gas target Model

14. THE NATURAL GAS MARKET IN EUROPE 3. One example case: Spain TARGET : To foster effective competition in the gas market. TOOLS : Gas market is set up over networks and infrastructures access: Consequently competition can be obtained through a fair TPA to the network Effective separation of network activities from production and supply activities: TSO (ENAGAS) ownership unbundled from supply and production companies TSO Certification according to 3 rd Package requirements Regulated Third Party Access to Infrastructures Non discriminatory and transparent rTPA with ex-ante regulated tariffs. Infrastructures development under a regulated economic regime: transmission and distribution gas pipelines, LNG plants and Underground Storage. Guarantee of investment recovery with a reasonable rate of return.

15. THE NATURAL GAS MARKET IN EUROPE 3. One example case: Spain SPANISH GAS MARKET EVOLUTION: Starting point: In year 1998 the Law of Hydrocarbons was set up: Sector Monopoly One single main company vertically integrated: Supply (owner of supply contracts) Owner of transmission gas pipelines and LNG plants Owner of distribution gas pipelines Access to Retail market, final consumer. Current situation: year 2012 TSO ownership unbundled from supply and production companies Legal and functional separation of DSOs from supply activities. Market with diversity of shippers.

16. THE NATURAL GAS MARKET IN EUROPE 3. One example case: Spain Gas Indicators Evolution19982011 Demand13 bcm34 bcm Customers3,5 mill.7,4 mill. Gas ratio in primary energy11%25% Number of shippersAlmost only oneMore than 25 Transmission Network size5.000 kmMore than 12.000 km Distribution Network size24.000 kmMore than 60.000 km Regasification terminals37 Underground Storage capacity (working gas) 22.864 GWh37.400 GWh (2012) Supply diversification5 different origins13 different origins

17. THE NATURAL GAS MARKET IN EUROPE 3. One example case: Spain: Gas Import Origins

18. THE NATURAL GAS MARKET IN EUROPE 3. One example case: Spain: Shippers Gas Market Quota Evolution

19. THE NATURAL GAS MARKET IN EUROPE

20. 3. One example case: Spain CHALLENGES AHEAD: Higher integration with Europe. Steps already taken: Development of new interconnection capacities between Spain and France through Open Seasons (to 7,5 bcm in 2015) Harmonization of system functioning and market rules through South Gas RegionaI Initiative Other steps Adoption of common European Network Codes: CAM, CMP, Balancing, Tariffs, Interoperability, etc. Accomplish Gas Target Model objectives: Wholesale market with Portugal, Hub development.

21. THE NATURAL GAS MARKET IN EUROPE Conclusions A well functioning internal market is crucial: Competitive natural gas market. Security of Supply. Sustainable and efficient market.

22. THE NATURAL GAS MARKET IN EUROPE THANK YOU VERY MUCH !