Dr. Stefanie NevelingBundesnetzagentur (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

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

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 sourcesless domestic gas production more transit, new investment

LNGLNG

LNG

4GTM Workshop in London, 11 April 2011

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

5GTM Workshop in London, 11 April 2011

Contractual Congestion

Historical utilisation rate at the intake point Baumgarten for TAG

0

1.000.000

2.000.000

3.000.000

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6.000.000

Feb 2

005

Mrz

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Mai

200

5

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8

Jun

2008

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008

Aug 2

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2009

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Committed Flow Rate including interruptible Measured Flow Rate including interruptible Nominal (technical)

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technical capacity available capacity used capacity

Historical capacity utilisation of the WAG pipeline at the entry point from MEGAL (W-E)

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Mrz

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Mai

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Mrz

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m3/

h

Capacity booked Capacities used Design capacity

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

Traded Gas Volumes on European Hubs

0 GWh

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PEG North TTF NCG GPL (bis 01.10.2009 MG H-Gas Norddtl.) ZEE

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

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 bcmC: 80% - U: 52%

TFC: 3,1 bcmC: 92%- U: 59%

TFC: 0,9 bcmC: 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

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

10GTM Workshop in London, 11 April 2011

Overview of high level options

Source: LECG

LECG Focus on:

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

LECG + MECOS

only MECOS

LECG + MECOS

MECOS & LECG

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

13GTM Workshop in London, 11 April 2011

Thank you for your attention!

www.energy-regulators.eu

14GTM Workshop in London, 11 April 2011

Back-up

Source: Gas Matters, February 2011