Dr. Stefanie Neveling Bundesnetzagentur (Federal Network Agency),

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

2. 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. 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 ? LNG LNG

4. Problem Identification • 3rd 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. Contractual Congestion

6. 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 liquidhub (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. 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. Status of market integration in the South region TFC: 0,15 bcm C: 80% - U: 52% TFC: 0,3 bcm C: 10% - U: 9% TFC: 0,1 bcm C: 0% - U: 0% 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 TFC: 3,3 bcm C: 2% - U: 2% Data: February 2011. Source ENAGAS-TIGF-REN. TFC (Total firm Capacity) – C (contracted) – U (used) TFC: 4,2 bcm C: 95% - U: 51%

9. Overview of high level options 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:Tightlyconnect markets • Explicit auctions • (Day-ahead) Implicit auctions/allocation • Make available capacity for connection (UIOLI/Overbooking) • Pillar 3:Enable securesupply patterns • Long term capacity auctions • SoS Investments Improve effectiveness by realising economic pipeline investments

10. Overview of high level options LECG Focus on: Source: LECG

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

12. 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. Thank you for your attention! www.energy-regulators.eu

14. Back-up Source: Gas Matters, February 2011