Gas Regional Initiative Region North-West Secondary Markets Betsy Annen, CRE

1. Gas Regional Initiative Region North-West Secondary Markets Betsy Annen, CRE Bernhard Schaefer, E.ON Ruhrgas

2. 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. 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. 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. 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. 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. 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. Survey on secondary trading (2/2) A questionnaire focused on specific design of products and procedures (13 questions), written in common by the 3 platform operators, TSOs, shippers and regulators. • 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

9. Preliminary results (1/3) • Strong interest of the market: until now25 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. 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. 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. 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. 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. THANK YOU FOR YOUR ATTENTION!

15. Appendix

16. Capacity transfer