1. Dr. Stefanie Neveling Bundesnetzagentur (Federal Network Agency), Head of Section „Access to Gas Transmission Networks and International Gas Trading” Problems in the European gas market and high level overview of options Gas Target Model Workshop London, 11 April 2011

2. 2GTM Workshop in London, 11 April 2011 Introduction The Target Model (Madrid Conclusions) should: provide support for FG and NC development to reach 2014 goal for completing the internal market guidance also for Commission´s guidelines and Regional Initiative / Int. Projects Internal market means: real choice, more cross-border trade, competitive prices… provide an outlook on the EU gas market beyond that date  Starting Point is problems the gas market faces

3. 3GTM Workshop in London, 11 April 2011 Setting the scene ? Challenges: Internal market by 2014  Competition EU 20-20-20, integration of RES  more CCGT’s?  Power to Gas? Security of Supply  N-1, Reverse Flow, access to diff. supply sources  less domestic gas production  more transit, new investment LNG

4. 4GTM Workshop in London, 11 April 2011 Problem Identification 3 rd Package makes Entry-Exit systems obligatory: Large Entry-Exit Systems may reduce firm capacity Internal congestion may lead to cross-subsidisation Small Entry-Exit systems are not market capable problem of “pan-caking” for long-distance transport For gas to flow where it is needed (price signal) there needs to be available capacity Contractual Congestion identified as a major problem, but not for all IPs Recital 21: “There is substantial contractual congestion in the gas networks.” Definition: "contractual congestion" means a situation where the level of firm capacity demand exceeds the technical capacity, Art. 2(21) Reg. 715/2009 Commission proposal on Congestion Management

5. 5GTM Workshop in London, 11 April 2011 Contractual Congestion

6. 6GTM Workshop in London, 11 April 2011 Status of market integration in the NW region Significant indigenous gas production, but increasingly import dependent Decoupled entry-exit zones implemented in almost every country NBP most liquid hub (churn rate:14-15), Zeebrugge (4-6), TTF (3-4), NCG (2-3) Gaspool (2-2,5), PEG Nord (1,5), trading volumes increasing Increasing price convergence but still price differences Significant infrastructure investments of European dimension (e.g. Northstream) Source: European Commission

7. 7GTM Workshop in London, 11 April 2011 Status of market integration in the South-South East region Characteristics: Large transit flows Several small markets, i.e. domestic consumption between 8 and 15 bcm/a (except for Poland and Italy) High dependency on Russian imports Out of 10 MS in SSE, only 3 markets with reasonable transparency on wholesale market prices Only in some MS Entry-Exit System/VPs Problems: High market concentration (wholesale and retail) No liquid wholesale markets, few VPs Low or no competition in retail markets Poor West-East (reverse flow) capability Poor North-South interconnections

8. 8GTM Workshop in London, 11 April 2011 Status of market integration in the South region TFC: 4,2 bcm C: 95% - U: 51% TFC: 3,3 bcm C: 2% - U: 2% TFC: 0,3 bcm C: 10% - U: 9% TFC: 0,1 bcm C: 0% - U: 0% Data: February 2011. Source ENAGAS-TIGF-REN. TFC (Total firm Capacity) – C (contracted) – U (used) TFC: 0,15 bcm C: 80% - U: 52% TFC: 3,1 bcm C: 92%- U: 59% TFC: 0,9 bcm C: 100%- U: 58% Region Characteristics: SGRI Demand 2010: France 52 bcm Spain 34,5 bcm - Portugal 4,3 bcm Highest European share of LNG supplies Satisfactory interconnection levels. Available firm capacity, particularly in LNG terminals. Absence of relevant congestions Security of Supply: Diversified supply origins Relevant aspects/problems for GTM: Coordinated bundled capacity allocation F- S. TSOs proposal for coordinating capacity allocation between P-S Independent Balancing zones: France (3 zones), Portugal (1), Spain (1) Existing Organised Markets in France. An organised market to be established soon in Spain. Market coupling: currently an alternative not equally achievable for all countries

9. 9GTM Workshop in London, 11 April 2011 Overview of high level options Improve effectiveness by realising economic pipeline investments MECOS Model Pillar 1: Enable functioning wholesale markets Establish Entry- Exit Zones (Market Areas) Merge Market Areas (national or cross-border) Establish Trading Region Pillar 2: Tightly connect markets Explicit auctions (Day-ahead) Implicit auctions/allocation Make available capacity for connection (UIOLI/Overbooking) Pillar 3: Enable secure supply patterns Long term capacity auctions SoS Investments

10. 10GTM Workshop in London, 11 April 2011 Overview of high level options Source: LECG LECG Focus on:

11. 11GTM Workshop in London, 11 April 2011 Overview of high level options Enable Markets: Connecting markets: Market areas (sub-) national or cross-border Full vertical integration Merging of market areas Taking physical connection into account Trading region Merger of entry-exit systems Taking physical connection into account Seperate end-user zones with national balancing system Bundling of capacity Harmonisation of products, Gas-day Explicit Auctions Make capacity available via UIOLI and/or Overbooking Market coupling Day-ahead implicit auctions/allocation as possible element to be tested in pilots first LECG + MECOS only MECOS LECG + MECOS MECOS & LECG

12. 12GTM Workshop in London, 11 April 2011 Conclusions Different degrees of development; lack of Entry-Exit Systems, liquid hubs, functioning national markets GTM needs to fit everywhere Options in Target Model necessary; North-West region most developed, hub-prices converging Problems of contractual congestion and no perfect price alignment Need to make spare capacity available; MECOS & LECG contain nearly same set of options: suitable framework for Target Model

13. 13GTM Workshop in London, 11 April 2011 Thank you for your attention! www.energy-regulators.eu

14. 14GTM Workshop in London, 11 April 2011 Back-up Source: Gas Matters, February 2011