The Integrated European Gas Market

Present status and Future Challenges

Adela Comanita System Development Adviser, ENTSOG

Pipeline Technology Conference – 28-30 March 2012 Hannover

Long and challenging process of European Gas Market Integration

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How to define system integration

Integrated European Gas Market is understood as enhanced cooperation and functioning of the system as a whole, including: > Interconnections between systems;

> Liberalization of the single European Market achieved by harmonized access conditions to the transmission networks and the application of the principles of nondiscrimination, transparency and objectivity for the organization of the Gas Market as a whole

The process has shown that this cannot be achieved without close cooperation between TSOs and other operators, NRAs, MSs, European Commission

> To achieve harmonization and cooperation and the application of the 3 principles, the legislative framework had to be amended/extended multiple times

Directive 2003/55/EC; Regulation (EC) 1775/2005; Directive 2009/73/EC; Regulation (EC) 715/2009 (amended in November 2010); Regulation (EC) 713/2009

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The process of integration – snapshots between past and future

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Liberalization started by changing the supply environment

Supply Demand Balance has long been ensured by imports (on top of NP)

which had lead to a well-interconnected gas transmission

system in Europe before the liberalisation started

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1992 1998 2000 2010

EU-27*

NP NP Exports Russia Norway Algeria Others

*Based on Eurostat (1992, 1998, 2000) and BP Statistical Review (2010) data

Interconnection between systems had primarily been determined by supply contracts and destination markets;

Liberalization has not changed this underlying logic but made it more

complex (and dynamic) while making new developments more difficult.

Pave the way for a new picture

The European integrated market will be a reality providing that common practices can be found and applied all across Europe, in particular on the following issues : >Capacity Allocation Mechanism (CAM)

>Congestion management

>Balancing

>Tariffs

>Data exchange

Implementation of such common and binding practices will be the main challenges for all stakeholders( shippers, NRAs, MSs … not only for TSOs)

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Situation is improving, even if new obstacles and challenges remain. The 3rd energy package introduces the framework of the Network Codes and Common Network Operation Tools

(New) Role of Infrastructure

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Political Goals

Role of infrastructure and hence investments are influenced by

political goals

Future gas flows at cross-border points will require higher infrastructure flexibility.

Appropriate incentives are necessary to attract required investments.

Single European gas market

> EU: 2014 > Development of Target Model > Development of European

market rules Capacity allocation

mechanisms Congestion management

procedures Balancing

Security of supply

> EU: no energy islands after 2015

> SoS Regulation: high level of security of supply, reverse flow across borders

> Energy infrastructure package: priority corridors

ENTSOG’s Contribution in creating the integrated European Gas Market

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… by fulfilling its tasks under the 3rd package and offering a platform for a truly European TSO cooperation, ENTSOG shall:

> enable easy grid access

> facilitate cross-border gas flows

> be a fair partner to all stakeholders

> provide regular short and long term assessment of the resilience of the European gas system under various scenarios and therefore

promote the integration of the European energy market

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ENTSOG’s Mission & Vision

ENTSOG’s achievements

> Delivery of the Ten Years Network Development Plans

• 1st pilot edition published in December 2009

• 2nd edition(first formal) published on 17th February 2011

• 3rd edition of the TYNDP is a process under develop, starting on September 2011 (slated to be published in Q3 2013)

> Delivery of Summer/Winter Outlooks

> Delivery of the NC for CAM (published on the 6th March 2012)

> Started work on balancing NC; interoperability and tariffs will follow soon

> Consultation and engagement of stakeholders

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The European Gas Market as seen through ENTSOG

TYNDP 2011-2020

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Annual Supply Demand Balance

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Overall supply potential

ENTSOG (EU-27) demand

The supply potential for Europe seems robust enough to meet all

presented demand outlooks while allowing also for additional flexibility > Geo-political developments as well as demand growth in producing countries to be

continuously analysed to confirm this outlook

(in TWh/y)

Submitted projects per category

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Pipes FID Non-FID

Projects 62 97

10^6 € 13 711 58 556

UGS FID Non-FID

Projects 26 22

10^6 € 4 260* 2 593*

LNG FID Non-FID

Projects 11 20

10^6 € 3 570 6 614*

(*): some project sponsors have not submitted costs

Network Resilience -- Key Findings

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Norway

North Africa

Russia

Caspian

LNG

Low UGS

Norway

Algeria

Qatari LNG

By transit

UA Transit

Security of Supply

Market Integration

Overall security will only improve with non-FID projects

with few exceptions

With only FID, storage deliverability

in winter remains a key requirement

Overall market integration is increasing due to FID &

non-FID projects but spread width

will still differ

Reference Case

Focus on Security of Supply

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Impact of indigenous production decline > Shall be compensated:

On a yearly basis by additional imports

On short severe climatic conditions by additional imports and/or new UGS

> In any case alternative and longer gas flows should be anticipated

European network is still not perfectly prepared to all disruptions > Modelled Norwegian, Algerian and LNG disruption scenarios should not decrease the

ability to face the whole demand with low impact on remaining flexibility

> Ukraine transit disruption impact should decrease with North Stream, OPAL and Gazelle (FID) and should be completely mitigated with Nabucco and South Stream

> Belarus transit disruption impact should decrease in Poland with LNG terminal (FID); the Baltic region will nevertheless still be negatively impacted even with the planned non-FID projects due to limited integration with the other regions

The use of UGS will depend on new project development > FID projects are only sufficient to address the additional demand under severe climatic

conditions

2011

Evolution of remaining flexibility (1-in-20 day)

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FID

Non-FID

2015

2020

New investment decisions are crucial in order not only to maintain but also to

increase European security of supply (FID projects will not be sufficient)

Focus on Market Integration

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TYNDP 2011-20 is a first attempt to picture market integration > No clear direction neither from REG-715 nor TYNDP WS on 17 October 2010 but EC

informal position on supply diversification per country:

At least 3 different sources

Access to one LNG terminal (LNG implicit diversification to be considered)

> High level of supply diversification across Europe is seen as a main underlying of price convergence across Europe

> Contractual congestion cannot be considered on a 10-year range especially when considering CAM/CMP measures to be implemented

> Criteria: maximum even spread of supply source / Targeted level 5% (second step 20%)

Heterogeneous situations > From an end-consumer perspective, the ability to access different sources will increase

but will still widely differ in 2020

> From a supply source perspective, gas reach will vary from regional extent (North Africa & Caspian region) to pan-European extent (Russia, LNG & Norway)

Source Accessibility for End-Consumers

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# countries having potential access (5% share) to at least 3 sources: 38% 55% 55% 62% 86%

Number of alternative potential sources

On the way toward a more integrated network

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Further network integration will support both SoS and market integration > Overall security will only improve with non-FID projects with few exceptions

> With only FID, storage deliverability in winter remains a key requirement

> Overall market integration is increasing due to FID & non-FID projects but spread width will still differ.

Conclusions

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Challenges for market integration are multiple > Enhanced cooperation between all stakeholders

> Commitment by all to look for balanced and sustainable solutions implementing the 3rd energy package provisions and the European vision

> The role of gas in Europe in the future

> Determination of infrastructure needs and the ‘who-pays’ principle

> Long-term sustainability of the construction and operation of gas infrastructure

Thank You for Your Attention

Adela Comanita ENTSOG -- European Network of Transmission System Operators for Gas Avenue de Cortenbergh 100, 1000 Brussels EML: Adela.Comanita@entsog.eu WWW: www.entsog.eu