1. 7th Stakeholder Group meeting The Hague – 07 May 2010 Gas Regional Initiative Region North-West Secondary Markets Betsy Annen, CRE Bernhard Schaefer, E.ON Ruhrgas

2. 2 7th Stakeholder Group meeting The Hague – 07 May 2010 Context ● ERGEG agenda: pilot framework guideline on capacity allocation ● Focus on primary allocation ● Auctions ● Standard bundled products ● Development of “hub to hub” market organization ● Secondary markets for capacity ● Important to provide some flexibility to shippers ● Highly influenced by primary allocation ● Domination of OTC

3. 3 7th Stakeholder Group meeting The Hague – 07 May 2010 What target model for secondary trading? ● Background for efficient secondary markets ● A well functioning primary market is necessary for efficient secondary markets ● The value of secondary capacity depends on the price of primary capacity ● Hub development is an incentive to secondary capacity trading ● Perspectives ● Relevant size for platforms ● Develop secondary markets consistently with the target model for CAM

4. 4 7th Stakeholder Group meeting The Hague – 07 May 2010 Today’s secondary markets can be improved ● Shippers can offer unused transport capacity to other market participants in need of capacity ● This “secondary” trading thus helps to optimize capacity portfolios and facilitates access to capacity ● In particular secondary trading of cross-border capacities supports regional integration ● Currently 3 platforms offer secondary trading in N-W region ● But: liquidity of secondary market should be enhanced to improve access to capacity

5. 5 7th Stakeholder Group meeting The Hague – 07 May 2010 Why platforms? ● Value added by platforms ● Transparency ● Non-discrimination ● Reduction of complexity ● Price reflecting the balance between supply and demand ● Risks and challenges ● Liquidity and value of secondary capacity ● Market power of dominant shippers ● Building stakeholders’ confidence ● Anonymity

6. 6 7th Stakeholder Group meeting The Hague – 07 May 2010 How to enhance platforms active in N-W? ● GRI N-W project aims at further developing the existing platforms ● Capsquare ● trac-x ● APX-Endex ● Products, processes, booking points, contracts, … ● To make the “right” changes we need to fully understand the barriers to trade ● Detailed input by market parties required  Currently a survey is taking place

7. 7 7th Stakeholder Group meeting The Hague – 07 May 2010 Survey on secondary trading (1/2) ● Addresses active and “inactive” shippers (with regard to secondary trading) Answers collected by regulators and confidentiality is guaranteed. Results presented to the stakeholders of the GRI NW but aggregated and anonymously. Survey launched mid-April. Distributed by different groups of stakeholders:  Platform: trac-x  Associations: EFET, BDEW, bne, Dutch Energiened, …  Program Office Results will be basis for report (together with complementary analysis of platform trading data)

8. 8 7th Stakeholder Group meeting The Hague – 07 May 2010 Survey on secondary trading (2/2) General interest for secondary market Use of secondary market (seller and buyer sides) Allocation method Counterparty issue Products Interconnection points Operating hours / trading windows Transfer of capacity A questionnaire focused on specific design of products and procedures (13 questions), written in common by the 3 platform operators, TSOs, shippers and regulators.

9. 9 7th Stakeholder Group meeting The Hague – 07 May 2010 Preliminary results (1/3)  Strong interest of the market: until now 25 answers received 40% large companies 40% medium companies 20% small companies *  Almost all answering companies have already done / tried to do secondary capacity trading. For 52%, this topic is of average importance. * Category (small, medium, large) chosen by the companies themselves

10. 10 7th Stakeholder Group meeting The Hague – 07 May 2010 Preliminary results (2/3) ON THE SELLER SIDE  70% of the companies try to sell capacity on secondary markets to decrease sunk costs of firm primary capacity bookings partly not used.  But, many of them are generally not successful in trying to sell these capacities on platforms. The main reasons provided are: The interconnection points covered were not the right ones No market demand at the price required  Those who are successful trade their capacities via OTC and not platform.  For some companies, the lack of liquidity on platforms is due to: The lack of standardized set of products The lack of possibility for sellers to chose with which parties to trade The lack of economic interest: too short duration compared to high transaction costs The lack of gas market maturity

11. 11 7th Stakeholder Group meeting The Hague – 07 May 2010 Preliminary results (3/3) ON THE BUYER SIDE  76% of the answering companies tried to buy capacity on the secondary market.  Their main objectives were to: Cope with the lack of available primary capacity (68%) Durations of primary capacity were not optimal (24%) Supply customers (52%) Arbitrate between hubs and markets (48%)  In trying to buy capacity, these companies met limited success. For them, this is mainly due to: The interesting interconnection points were not covered by platforms The gas market is not mature enough The lack of standard contract framework No possibility to trade on both sides of one interconnection point at the same time

12. 12 7th Stakeholder Group meeting The Hague – 07 May 2010 Your participation in survey is needed ● Your input is essential to ensure that problems are solved and changes are market driven! ● If you want to influence market design, please take part in the survey ● Regardless of whether you have already traded secondary capacity or not ● What counts is that you have an interest in the market ● New deadline: 21 May 2010  URL: http://www.energy-regulators.eu/portal/page/portal/EER_HOME/EER_INITIATIVES/GRI/North_West /Priorities1/Capacity/Secondary%20markets ● Next steps:  collect further responses  detailed analysis  agree on amendments to platforms  develop long-term view for project

13. 13 7th Stakeholder Group meeting The Hague – 07 May 2010 Questions related to the project ● Interconnection points covered by the platforms ● Add new IPs? ● Standardization of products ● Same products as on primary markets? ● Bundling? ● Defining standard volumes? ● Standardization of contracts? ● Coordination with the EU agenda

14. 14 7th Stakeholder Group meeting The Hague – 07 May 2010 THANK YOU FOR YOUR ATTENTION!

15. 15 7th Stakeholder Group meeting The Hague – 07 May 2010 Appendix

16. 16 7th Stakeholder Group meeting The Hague – 07 May 2010 Capacity transfer