GIE Annual Conference 3 November 2005, Athens How trading contributes to security of gas supply Colin Lyle Chairman of the Gas Committee European Federation of Energy Traders

“ Proper long-term functioning of markets will guarantee energy security of supply and attract investors ” EFET (Electricity committee) Press statement 24 February 2005 EFET’s basic position

“security of supply comes down to a risk management strategy… there is ample of evidence that the market can be an efficient tool for achieving security of supply” Centre for European Policy Studies Reports and articles 2004/5 Reliability and diversity are risk management issues

What is the cost of reducing the risk of disruption (to consumers) compared with the value of improved continuity of delivered supplies? … are we paying too much already? Security of supply is not absolute

Integrated grid and merchant Monopolies had some clear advantages regarding supply security Were integrated ‘single buyers’ successful in delivering supply security? Purchasing power & economies of scale … but with all costs (good or bad) passed to consumer Centralised operation, supply planning and system design … but did this lead to the right investments and the most efficient operation? Sole responsibility for emergency response … used frequently for managing blackouts!

2003/55/EC changed EU gas market structure, with unbundling of infrastructure from supply. Integrated Monopoly model is gone The old security of supply model is no longer available to the European gas industry The competitive market has the potential to provide at least the same level of supply security more efficiently. Half turning back to old ways could lead to disaster.

Governments can set the required outputs in Security of Supply Policy Markets can deliver more cost-effective and innovative energy supply solutions The TSOs must still provide timely capacity to deliver energy to consumers through sufficiently diverse routes. And new combinations exist…

Transparency provides confidence, and ensures capacity is made available. Ability of market to use resources more efficiently than by central planning. Market price signals & freedom to invest brings forward supplies and infrastructure. Demand signals become meaningful and customers respond. How can trading help?

“ The greatest danger to the future security of Europe ’ s gas supplies is the continuing uncertainty and delay in implementing a single energy market. ” Trading is essential for Europe’s gas security of supply EFET (Gas Committee) Position paper October 2002.