The Gas Target Model – Requirements

and consequences for the CEE Region

18th Euroforum Annual Conference

Berlin, October 23rd 2012

Thomas Kleefuß, CEO

Connecting Markets

Requirements for a new market design

Overview of Infrastructure developments in CEE

Conclusion

Making the European Gas Target Model work

AGENDA

Gazelle will transport from January Nord Stream gas to Waidhaus and change gas flows in CEE

Nord Stream

OPAL

Gazelle

Gaspool

NCG

VTP

Capacity 30 bcm/y

Length 166km, size DN

1400, pressure PN 84

Budget €377mm (CZK 9,378mm)

NET4GAS delivers projects on time

and within budget:

1,035 easement contracts

negotiated and signed

Transfer station in Brandov

started-up in October 2011

First 20km will be completed by

November 1st 2012

This will guarantee full entry

capacity for all volumes from the

GE contract and OPAL

Start-up date January 1st 2013

Commentary

Liquidity in CEE will improve by new gas supplies from the southern corridor and the north south connections enable market integration

The southern corridor will trigger upstream competition against russian gas where as the new North-South Corridor(s) are will enable to connect neighbouringmarkets with just two (smaller) projects:

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

b) Oberkappel connection (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

PL- SK

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

5

Performance-driven culture that inspires, develops and challenges employees

NET4GAS the Turn Table for Gas in CEE

Asset Management Sales & Regulation

Operational and commercial excellence for a safe, reliable and environmentally friendly transport service

Pillars of improvement, development

and growth

NET4GASfoundation

Transform our strength into growth

Development of assets:New connections and

interconnectors, efficient redesign of existing capacities

Develop innovative products

Fast, flexible and transparent support of traders & suppliers and other network operator business by innovative and customer-oriented

products

Pro-actively design the market

Influencing the market rules shaped by

EU, ENTSOG and ACER

Develop new tarifficationmethods which allow

financing of SoS

NET4GAS is committed to develop and

connect markets

6

F-BD7

“GATRAC” Bundled Hub-to-Hub products

as a role model for Europe

cross border gas transports can be met rather quickly by expansion of the GATRAC

Benefits:

No need to amend legal framework if national legal rules are not mandatory for cross border capacities

Similar procedures and contracts for all routes

Compatible with TRAC X

VTP

PEG

TTF

CEGH

NCG

current scope of cooperation

possible future routes

VP

NET4GAS Vision and Methods

Our strategic vision was implemented in the Gas Target model – NET4GAS promotes market integration in CEE

European Gas Target Model

of

CEER / ACER

9 – 11 functional gas market areas within the EU(instead of 30+ today)

Integration of trading regions via TSO consolidation with strong focus on synergies

Remaining functional markets are sufficiently physically connected – as long as congested connections exit, market coupling procedures are applied

Appropriate EU-wide tariffication methodology for TSOs to be established (with cross-border cost allocation)

8

Gas Target Model

9

LNGEU Border

Storage

Endcustomer

Production

VP

28 E/X-Systems 1)

(national, sub-national)

> 10 E/X-Systems 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

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 Regions enable i.e. faster establishment

of functioning wholesale markets

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

10

The pilot project of “Trading Region” is a

first step towards the Gas Target Model

A Central European trading region would

facilitate the creation of one common virtual

trading point and the establishment of a single

gas exchange, the benefits of which are:

Establishing a functioning gas market with

hub-to-hub capacity products to all

neighbouring markets and potentially

beyond

Cross-regional arbitrage opportunities and

diversification of gas suppliers

Increasing liquidity and pricing competition

Shift of idle transit capacities to required

intra-market capacities

Reduction of pipe-to-pipe competition and

optimal application of existing pipeline

infrastructure within region

Trading Region in Central Europe

PL-Hub

HUN-Hub

PSV

(CEGH+)

NCG

Gaspool

Trading Hubs

Commentary

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

Oberkappel connection

1

2

Baumgarten

Eustream

12

13

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 was promising with regard to the connection between Austria and Italy

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

The Gas Target Model will work, if….

Regulators will offer a stable outlook and leave TSOs incentives for cooperation

Regulators will take a long term view and develop new financing mechanisms for sufficient transit and SoS capacities

TSOs and shippers take an active role in regional markets developments

the development and implementation of Hub-to-Hub capacity products e.g. (GATRAC) will be supported by all stakeholders incl. shippers and producers

Efficient Investments will made

Based on integrated grid and capacity mapping

in line future market design (gas target model)

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

TSO consolidations will take place - also cross border

regulatory regimes for all infrastructure will be harmonized

Thank you for your attention!

Connecting Markets

Berlin, October 23rd 2012