Gas target model

and cross border products

2nd Annual Gas Forum

Vienna, November 8th 2011

Thomas Kleefuß

CEO

The „Turn Table“ for Gas in Central Europe supports east-west and north-south transits

Významné předávací stanice

Waidhaus

HPS Lanžhot

Brandov

Olbernhau

Hospozín

93 mil m3/d

30 mil m3/d

93 mil m3/d

180 mil m3/d

25 mil m3/d

35 mil m3/d

35 mil m3/d92 mil m3/d Gazelle

70 mil m3/d

30 mil m3/d

0,5 – 2,5 mil m3/d93mil m3/d

Český Těšín

35 mil m3/d 18 mil m3/d

Sayda

2

With Nordstream, OPAL and Gazelle Gazprom will be

able to bypass Ukraine as the major transit country

Current gas flows

Gazelle

White Stream / GUEU

Nabucco / South StreamTauern pipeline

OPAL

Nord Stream

Lanzhot - Baumgarten

Shift of gas flows

expected from 2011

Major Russian gas flows will be shifted from the Southern Russian onshore transit route to Nord Stream / OPAL / NEL.

The first branch of the offshore Russian transit highway will be used earliest in 2011. The second line will be completed not before 2013.

In order to benefit from the new/planned infrastructure in Southern Europe (e.g. LNG, Caspian gas) starting not before 2012, access to Baumgarten is essential.

Pipeline Project Gazelle is necessary for extension of Nord Stream/OPAL and GE contract (shift to entry point Hora Svate Kateriny).

Project “Lanzhot – Baumgarten connection” is necessary in order to capitalize on infrastructural developments in the South East of Europe.

Future gas flows

Nord Stream / OPAL / Gazelle

Nord Stream

OPAL

Gazelle

Gaspool

NCG

VTP

Integration means:

Increase the liquidity of gas markets (virtual trading points / hubs) along the route virtual trading points (hubs) by large volumes

Here:- Gaspool- Czech VTP- NCG- and beyond

Nabucco increases Europe’s Security of Supply

by diversifying Supply Routes and Sources

5

1) Source: CERA, 2009 annual consumption figures

2) Potential Russian gas export capacity

3) Potential gas delivery per source country

Nabucco

South Stream

ITGITAP

Iraqi gas ~ 20 bcm/a 3)

Turkey

33.5

Austria

8.8

Bulgaria

3.5

Romania

13.7

Hungary

12.7

Germany

81.9

France

45.2

Poland

14.3

Czech Republic 7.8

Slovakia 5.4

5.4

10.2Gas consumption in bcm/a of non-Nabucco countries 1)

Gas consumption in bcm/a of Nabucco transit countries 1)

8.8

Nabucco transit countries

Other countries

Turkmen gas ~40 bcm/a3)

Azeri gas ~21bcm/a3)

Olbernau/Sayda

Waidhaus

Burghausen

TAG

Nabucco

Baumgarten

Lanzhot

NCG market Area

Gaspoolmarket area

WAG

MEGAL Süd

MEGAL Nord

21-24 bcm/a reaching Baumgarten

Neither the Austrian nor the Czech

Market (nor both markets combined) can

absorb 21-24 bcm/a without serious

market distortions

Since SD2 will not accept the CEGH

price risk, the buyer must be able to

ensure re-imbursable onwards transport

to Germany

1) assuming that they are being run at 70% load compared to current levels of ~40%

Risks of market distortions:

8.8 7.8

81.9

10.8

77.7

14.3

5.4

0

10

20

30

40

50

60

70

80

90

Austria Czech

Republic

Germany Hungary Italy Poland Slovak

Republic

Bcm

0

10

20

30

40

50

60

70

80

90

100

France Germany Italy Netherlands Spain United

Kingdom

Bcm

0

10

20

30

40

50

60

70

80

90

100

France Germany Italy Netherlands Spain United

Kingdom

Bcm

82 bcm/a

9 bcm/a

Potential evacuation routes for residual Nabucco volumes

16-19 bcm/a reaching Germany

8.8 7.8

81.9

10.8

77.7

14.3

5.4

0

10

20

30

40

50

60

70

80

90

Austria Czech

Republic

Germany Hungary Italy Poland Slovak

Republic

Bcm

RepublicCzech

Oberkappel

9 bcm/a

6

Gas Target Model

7

LNGEU Border

Storage

Endcustomer

Production

VP

28 E/X-Systeme 1)

(national, sub-national)

? E/X-Systeme 2)

As premises for functional markets

One europeanE/X-System

Gasinfrastructure - EU Marktarchitecturetoday: tomorrow:

To difficult and to long for realisation

6 national Systems: 40 bcm < x < 100 bcm4 national Systems: 12 bcm < x < 18 bcm

15 national Systems: 1 bcm < x < 9 bcm(x = annual consumption)

1) after implementation of 3rd package

2)no congestion or restriction in combination of Entry and Exit

Ten to twelve market areas or trading regionsEach of them

designed as congestion-free1 entry-exit-systems that in general do not impose

restrictions to capacity utilization or combination of entry and exit points

containing a virtual trading point acting as hub and a gas exchange operating on this hub

offering additional flexibility services2 beyond balancing of forecast errors

Tightly connected market areas/trading regionsBetween these hubs

bundled capacity products are offered for explicit capacity booking

market coupling procedures are established for implicit allocation of day-ahead capacity

Properly connected gas storages and gas sources3 to market

areas/trading regions

Single and bundled capacities are offered between the gas sources and hubs

Gas storages are connected to the respective hub of the market area/trading region

1 This may be achieved by investments removing bottlenecks, applying control energy and/or some few and well-founded capacity utilization restrictions. However, the restrictions shall be published prior to offering the capacity.

2 It shall allow shippers to create nominated imbalances inside pre-defined limits. 3 EU border interconnection points, LNG terminals, indigenous production sites

Future EU Gas Market Architecture(Assumption)

Trading Region AB = Cross-border entry/exit system including all nominated points on the transmission systems of countries A and B

End-user Zone = National balancing zone for national final customers, no matter the system (distribution or transmission) they are connected to

Virtual point of the trading region serving as the sole marketplace of the trading region and all attached end-user zones. Shifting of gas between trading region and end-user zone is done by nominating a virtual exit on the VP.

A trading region allows shipper to bundled their purchase portfolios but not the supply portfolios of the countries inside

Storages and indigenous productions of the countries inside the region are linked to the VP

The trading region model reduces the requirements of legal conditions between participating countries for establishing of cross-border markets as much as possible

Trading Region model at a glance

,

-

E or X contract X contract

Country A Country B

Trading Region AB

End-userZone A

End-userZone B

Final customers (A) Final customers (B)

VPVP

NB: Trading regions can be developed also for more than two

countries and don’t hamper the establishment of full merged

markets later

Functional Markets by Trading Regions

10

Future EU Gas Market Architecture

(Assumtion)

EU Border PointEU Entry CapacityHub-to-Hub CapacityLink Chain ALink Chain BHub

Market Area / Trading Region

N4G enables a functioning market in

Central Europe by forming a trading region

with Austria, Slovakia and Hungary

One investment to Austria just required (Vodňany <> Oberkappel would (probably) be necessary in order to establish a trading region (one wholesale market) together with A, SK, HUN and maybe SLO

One common VP and gas exchange

Hub-to-Hub capacity products to all neighbouring markets and maybe beyond

National distribution zones remain substantially unaffected

Expected benefits are (a) shift of unused transit capacities to required intra market capacities, (b) reduction of pipe-to-pipe competition and (c) continuing eye-level TSO cooperation/ avoiding RSO

Trading Region in Central Europe

PL-Hub

ROM-Hub

PSV

(CEGH+)

NCG

Gaspool

11

12

EU TSO Cooperation

Train-ticket achieved by inter-TSO capacity booking per shipper request (i.e. case-specifically)

One-stop-shop achieved by unlimited inter-TSO capacity booking

Effective and efficient development, implementation and operation of the platform achieved by:

Jointly elaborating and structuring of working programs and

implementation schedules

Common TSO working groups equipped with TSO experts

Accompanied by experienced consultants

Discussion and agreement of working programs and associated cost

with national regulators

Establishing and applying of common standards for bundled products

(one-time development, multiple application by different TSOs)

Continuous collaboration on eye level

Flexible and fast decision making

…

Regulatory Requirements

• ACER Framework Guidelines “Capacity Allocation Management”, FG CAM, requesting– Online platforms for bundled cross-border capacities, as well as measures and a schedule

for reducing the number of platforms towards one– Single allocation procedure for entry and exit capacities at an interconnection– Single nomination procedure for bundled capacities

• Transformation of FG CAM into an ENTSO-G Network Code until March 2012

Currently Two Competing Models for Online Platforms

A. Organizing TSO, oTSO = GATRAC– Realizing “one-stop-shop”: just one contractual TSO for shippers in order to transport gas

through Europe– Realizing “train-ticket”: just one contract for hub-to-hub transports, etc.– Limited liability for TSOs to be implemented (in comparison to today)

B. Capacity Agent = Trac-x (GER), Link4Hubs (GUD, GTS, Energinet.dk), Capsquare (GRTgaz, Fluxys), Eucabo (GUD, GTS)

– Realizing “single allocation procedure”– Realizing “single nomination procedure”, but no one-stop-shop or train-ticket– Important issue: agent could be the nucleus for a single EU system operator

European Online Platform for Capacities

14

All capacity products required by the

wholesale market

Hub-to-hub

EUBP1-to-hub

Storages-to-hub, hub-to-storages

LNG terminal-to-hub

Indigenous production-to-hub

All tenures required by the NetCode

Intra-day

Day-ahead

Short-term (more days, week, month)

Mid-term (more months, quarter, half-a-year,

year)

Long-term (more years)

Firm and interruptible capacities

All explicit allocation procedures

required by the NetCode

OSW, auctions

FCFS

Open season procedures

Train-tickets

Single contracts for capacities on

interconnection points (bundled products)

One contact partner for initiation, conclusion,

nomination, settlement, …

One-stop-shop

Shippers can choose one contracting party

(oTSO) for all capacity products required for

operation within the EU gas wholesale markets

(thereby harmonizing applied law, language,

currency, etc.).

However, each shipper is free to choose

different oTSOs for different contracts.

One single gas capacity platform for

the EU

However, the platform can be extended easily

also across the EU borders.

Well inter-linked

With the retail market platform of each market

area/trading region

With trader-system interfaces for easy and fast

integration of trade and transport business1 EUBP = EU Border Point2 According to the Network Code

European Capacity Platformfor the Wholesale Markets

15

European Capacity Platforms

for Wholesale & Retail

TSO A TSO B TSO C TSO D TSO ……

… … …

…Retail Platforms

(10-12)

Suppliers, Final Customers

Suppliers, Final Customers

Suppliers, Final Customers

Wholesale Platform

(1)

S h i p p e r s

GATRAC Platform

TradingApplication

GATRAC =

Bundled Day-ahead Capacity

Direct connection between respective VPs

Bundled products with one single contract (similar “train tickets”)

Bookable with each participating TSO on FCFS-principle

First two products:

Firm daily capacity (VTP <> Gaspool)

Interruptible daily cap. (VTP <> NCG)

Bookable one to more day(s) ahead*

Bookable since

25.11.2010 (firm cap.)

09.05.2011 (interr. cap.)

No renominations

VP

VTP

* More days ahead will be used to allow bookings over the weekend and holidays and to align capacity booking periods with trading times on the EEX Gas Spot Market

NCG

16

17

GATRAC already achieved

Story or vision, how the European capacity market should be organized in the future

Entry into the EU markets, intra-market, cross-market Primary and secondary capacities Allocation procedures

Detailed Co-operation Concept Way of co-operation, accession, resignation, expulsion Decision making Development (annual work programme, …) …

First draft of the corresponding Co-operation Contract

First hub-to-hub products implemented

Rough IT Concept for further extension (capacity products and allocation mechanism)

Many interested parties (TSOs, regulators, shippers)

North-South Corridor(s)

Establishing of North-South Corridor(s) and – at the same time –connecting neighboring markets just with two (smaller) projects:

a) Poland connection (using the SK-HUN connection or existing lines)

b) Oberkappelconnection (in cooperation with TGL)

NB: a new corridor more East would just create an additional route for Russian Gas what isn‘t needed

a)

b)

TGLSK-HUN

Gaspool

NCG

VTP

CEGH

VTPPoland

VTP

MGP

Nabucco extension by app. 60 km creates the most economic access to one of the largest existing transmission systems in Europe and direct connections to - Germany, North

and South- Poland- and beyond

Nabucco

N4G provides for Nabucco the most

economic access to 4 markets: CR, PL,

Gaspool and NCG

Nabucco Extension

Most efficient investment

compared to WAG

extension

N4G North-South-corridor

to Poland is already

reflected in the European

Investment plans (#1).

(Moravia Project)

N4G now tries to include

Oberkappel connection in

the regional and European

investment plans (#2)

Connection to Oberkappel will support an

EU-North-South corridor and serve as a

backbone for a trading region CZ-A-SK-HU

Oberkappel connection

Interconnection point Compressor stationUGS

Oberkappelconnection

1

2

Baumgarten

Eustream

20

Partner (TSOs) and necessary investments Tauerngasleitung GmbH, TGL GmbH: Tauerngasleitung from Haiming (D) to Tarvisio (I) and

connection to Slovenia (app. €1,2 bn ) NET4GAS. s.r.o.: N4G-Oberkappel Interconnection, ONI (app. € 150 mio ) Bayernets GmbH: “Monaco-Pipeline” (intra national grid extension) Geoplin Plinovodi: Interconnection to the Tauerngasleitung

Market Survey 5GL

Interconnecting five gas marketso Germany (NCG, Gaspool)o Austria (VTP = CEGH)o Italy (PSV)o Czech Republic (VOB)o Slovenia (VTP)

Market Surveyo Start: August 2011o End: November 2011o More than 230 shippers informedo Results expected soon

• Supported by o National Regulatorso EC DG Energy

Implementationo Depends on the results of the recent market

survey and a possible open season procedureo Not before 2016/17

N4G-Measures towards further Market

Integration

Strong support of Regulatory Development

Fast Implementation of 3rd Energy Package (ITO, pur E/X, …)

Development of a Gas Target Model (together with E-Control, BNetzA, Florence School of Regulation and Clingendael Institute)

► Establishing „functional gas markets“ (> 20 bcm/a; > 3 gas sources; > 10 supplliers)

► Connecting the functional gas markets (hub-to-hub, market coupling, …)

► Securing supply pattern (new corridors, surplus capacities, reverse flows)

Development and Implementation of Hub-to-Hub capacity products (GATRAC)

Efficient Investments

in line with the further market development (gas target model)

more integration (include existing assets) than „in addition“ (avoiding asset competition)

► Nord Stream integration (connection to Waidhaus; Gazelle)

► Nabucco integration (interconnecting the large Czech transmission system)

► North-South-Corridor(s)

Czech-Poland Connector plus Moravia Loop

Czech-Austria Connector (Oberkappel)