EUROGAS LNG TASK FORCE Bilbao, 13 March 2009 Presentation by Victor Tuñon, Chairman of LNG Task Force

Eurogas LNG group represents: Eurogas represents the most important LNG terminal users in Europe, operating in the seven countries where LNG is present 13 members from 8 countries Eurogas members imported 70% of the total EU27 LNG imports in 2008 Key objectives: Represent terminal users’ interests Ensure that the views of users are taken into account in all relevant policy making activities. Key Policy Principles Access rules should meet users’ interests, in respect of transparency, standardization of approval procedures, harmonization of operating procedures etc.

General Observations to GGPLNG The existing policy framework as presented in the 2003 Gas Directive has given favourable results for investments in LNG so far; Non discriminatory and transparency rules should apply across Europe. Before implementing harmonised standards at EU level it should be taken into account the different supply profiles across Europe (example: Spain & UK); Each Member States should be precise in defining the TPA access rules (test). It seems useful to have more precisions on allocation of primary capacity; Some rules might be applied to exempted terminals, like transparency rules, but for allocation of capacity, there are concerns if the Guidelines become regulation.

Application of CAM to past capacity bookings Guidelines should focus on the general principles for LNG facility access but be flexible enough to respect the various contractual arrangements in place and the circumstances of each Member State. Accordingly, the GGPLNG must recognize the role that global prices have on LNG market flows when designing primary and secondary capacity allocation mechanisms. It should allow Member States and LNG suppliers to develop mechanisms appropriate for the circumstances present in its market, provided these are non discriminatory and consistent with internal market legislation. The allocation of primary capacity should be subject to more detailed procedural rules to ensure that the chosen allocation methodology and implementation of such methodology is non-discriminatory.

Application of CAM to past capacity bookings The process needs to address models that require a certain percentage of firm primary capacity to be set aside for new entrants or short term services. Given the varied nature of individual Member States, the focus should be on development of standard and robust allocation procedures. The presence of a secondary capacity trading mechanism should not cause any negative impact on utilization of LNG terminal capacity. Optimal utilization will continue to be driven by global price signals and the use of DES transactions to access different markets around the world. If demand for capacity is much higher than the existing capacity, actions to develop new capacity should have the highest priority.

Anti-hoarding rules Need for National regulatory authorities to define “capacity hoarding” so that it can be applied across all Member States and be used for all gas assets. The definition of the utilization of capacity should take into account seasonal demand and the rump up of the new demand. It is difficult to strike a balance between the interests of primary capacity holders and promotion of secondary capacity trading if the two categories are given equal priority. NRAs must recognize that primary capacity holders have made financial commitments that have allowed the facilities to be built in the first instance.

Anti-hoarding rules The interests of primary capacity holders can be protected if they are fairly compensated for the market value of the surrendered capacity as well as any other reasonable costs and risks incurred (e.g., liability associated with the negligent use of the facility by a secondary shipper), 2) the details of the capacity hoarding mechanism are agreed by all parties, including the NRA, prior to finalization of the relevant commercial arrangements and 3) primary capacity holders are fully compensated for changes to the agreed mechanism imposed by NRAs after commercial agreements have been completed. Again, there is a danger that the interpretation of what constitutes “optimal” utilization could be inconsistent with the commercial realities of the global gas market.

Anti-hoarding rules The mechanism should not be unduly prescriptive by requiring an auction for allocation of secondary capacity if it is clear that OTC markets are sufficiently robust to achieve efficient use of capacity. The mechanism must address credit and liability issues associated with use by the secondary shipper, including the cost to the primary shipper of failing to deliver a cargo. The tariff charged to the primary capacity holder must reflect the diminution of flexibility caused by adoption of a secondary capacity mechanism. Secondary holders must be bound by the same rules designed to prevent capacity hoarding. The GGPLNG should require that the relevant NRA has the burden of proof to establish that the facility is not being used.

Other points to be considered The Gas directive does not impose obligations on system users, only on various system operators for the benefit of system users. Therefore it might be inappropriate for Regulation to impose such obligations for the users The desire to protect « small » LNG players should not impose cost or burdens on the LNG facility operator or primary capacity holder that are not fully compensated, it should neither create cross subsidies among players. GGPLNG should not address the issues of ship compatibility with terminals and vetting procedures, which are covered by international organizations Quality standards can not be set by each LSO, but the relevant authorities or specialized industry bodies

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