1. IFIEC EUROPE 1 European gas market Where do we stand ? Peter Claes President - IFIEC Europe SVSE – 14 September 2005

2. IFIEC EUROPE 2 Some facts and figures… Global Insight Report: the UK and the US forward markets are the only two in the world which work efficiently...

3. IFIEC EUROPE 3 $7.12 $7.23 * 29/04/05

4. IFIEC EUROPE 4 Some facts and figures… Insight Report Global : the UK and the US forward markets are the only two in the world which work efficiently... Is there a shortage of gas in the UK ?

5. IFIEC EUROPE 5

6. 6 Some facts and figures… Insight Report Global : the UK and the US forward markets are the only two in the world which work efficiently... Is there a shortage of gas in the UK ? Is there a single European gas market ?

7. IFIEC EUROPE 7

8. 8 General objective The desired result is gas-to-gas competition The implementation of the gas directives has not achieved this objective so far IFIEC Europe regrets several Member States have not yet transposed Directive 2003/55/EC in national legislation

9. IFIEC EUROPE 9 General We believe that the prerequisites for a fully operational single gas market are: - Availability of gas from competing suppliers - Access to the gas infrastructures under non-discriminatory, harmonized and cost-reflective conditions - Gas infrastructures to include: on-shore and off-shore pipelines, LNG terminals, booster, storage & facilities for blending and balancing - Gas infrastructures to be treated as “essential facilities” - Full ownership unbundling of gas infrastructures’ services and commercial activities - Regulatory control (rTPA) - Transparency of capacity availability - Complete interoperability of existing gas networks

10. IFIEC EUROPE 10 IFIEC EUROPE VIEW There is nowhere in sight yet a true level playing field in terms of access to the gas networks, not to speak of competing suppliers willing to offer gas in all markets. IFIEC Europe believes that the objectives set by the Community, in particular with regard to the Lisbon Council agenda of improvement of the EU industry competitiveness, will not be achieved unless additional measures are put in place to force the implementation of the Directive.

11. IFIEC EUROPE 11 IFIEC EUROPE VIEW For the above reasons we welcome and strongly support the entry into force of the Regulation on conditions of access to the gas transmission networks. The internal gas market will only work if access conditions to the networks and to storage correspond to a minimum standard, harmonized across all countries. This apparently can be achieved only by a Regulation, based on the rules and principles adopted at the 7th Madrid Gas Forum by all participants.

12. IFIEC EUROPE 12 Main Roles & Responsibilities of TSO’s Adopt “Best Industry Practice” Ensure maintenance, safe operation and development of the essential facilities Transparent residual balancing role Facilitate non-discriminatory access to the gas infrastructures Ensure interoperability between different networks (see also EASEE-gas) Ownership unbundling, i.e. no links to production and supply within integrated gas undertakings Case : Where was the “reverse flow” in the Interconnector when the UK needed the gas?

13. IFIEC EUROPE 13 ‘In the regulatory job whether you have three or three hundred people you can always find something that has to be done. You can always find another niche to be liberalised. The question is whether in practice you can get any benefit out of it’ Kyran Hanks, Power UK, November 2004 Regulators need to be champions of the cause and avoid being tied up in legalistic red tape. Message for regulators

14. IFIEC EUROPE 14 Formal price link between natural gas and oil products must be broken Gas customers may be their own worst enemy Makes for an easy life! Long-term take or pay contracts are not necessary for security of supply It is essential to regulate to ensure that long-term take or pay contracts are balanced by gas release schemes. Could be a condition of supply from non EU-countries Pricing

15. IFIEC EUROPE 15 Tariff structure IFIEC Europe recommends tariffs’ methodologies that facilitate the development of competition Tariff methodology to be based on the following principles: - tariffs to be cost-reflective, simple, with harmonized methodology and supervised by the regulator - asset valuation to be based on historical depreciated values for existing facilities and actual values for new infrastructures - application of utility-type rate of return with depreciation based on the useful lifetime of the investments - appropriate incentives schemes for the efficient long-term investment in transportation infrastructures IFIEC Europe is in favor of an Entry/Exit Tariff System

16. IFIEC EUROPE 16 Balancing regimes Balancing regimes should be designed to facilitate gas-to-gas competition and use of the grid IFIEC Europe is in favor of a daily balancing regime Whenever possible rules and charges should be harmonized across different networks to facilitate cross-border transportation Rules for balancing and charges for imbalances should: - apply to all network users without discrimination - incentivise the users with non-punitive charges - charges to be cost-reflective and approved/supervised by the regulator TSO’s have the ultimate responsibility for safety of the network

17. IFIEC EUROPE 17 Access to Storage Storage and flexibility tools are essential facilities of the gas network. IFIEC Europe therefore welcomes the Guidelines for Good Practice for Storage System Operators (GGPSSO) as agreed in the Madrid Forum… … BUT is not happy with guidelines on – TPA – information and transparency – bundled / unbundled services – liberty of choice for SSOs / TSOs IFIEC Europe will closely monitor the application of the GGPSSO and will insist on the need for a regulation if the guidelines do not sufficiently promote market liberalisation.

18. IFIEC EUROPE 18 Conclusion : Multiple gas suppliers, long-term contracts and gas release programmes Long-term TOP contract will be necessary also in the future, but they must not frustrate competition and should evolve to the liberalized gas market conditions. The extent of the coverage of TOP contracts of about 90% of the European gas demand is very disturbing and, if not corrected, will freeze the status- quo for the next foreseeable future The only solution to this problem are “gas release programmes” IFIEC Europe urges Member States to utilize gas release programmes as a way to kick-start real supply-side competition IFIEC Europe is still of the opinion that: “ Even a perfect TPA system will not bring gas-to-gas competition in absence of competing gas offers”