gas regional initiative - region south-south east 1st implementation group meeting an action plan...

Gas Regional Initiative - Region South-South East

1st Implementation Group Meeting

An Action Plan for the South-South East Europe Natural Gas Market

Vienna, July 13th, 2006

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European Commission assessment of the European Gas Market - Is this true in SSE?

• Gas market is not transparent, confidentiality a problem

• Concentration level high, not changed after liberalisation

• Incumbents control domestic production, import supplies, trade

• Gas infrastructure mostly owned or controlled by incumbents and not adequately unbundled

• Long term transit and storage capacity reservation to existing contracts leads to:

•little room to new entrants, even on a short term basis

•inefficient infrastructure development and utilization

• Lack of effective cross border competition

• Prices mostly linked to oil market, not to demand and supply

• Regulatory co-ordination not adequate and is hindered by asymmetries in regulators’ powers

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GRI: Preparation of the Action Plan

• Fact finding study:• Common information background to be achieved• In depth information exchange among regulators• Limited data collection from TSOs and other sources, to be undertaken by each

regulator, if necessary (July-August)

• Written Consultation

• Hearings

• Outcome: an Action Plan to solve the problems over 3-4 years

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Preliminary assessment of the SSE market (2005)

Total market size

142.1 Bcm/y

2.7

9.11.1

14.86.5

85.1

9.6

13.2

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Preliminary assessment of the SSE market

Main market features:

• Limited self sufficiency (14%)

• Largest transit system in Europe (East-West)

• High dependence on the largest supplier (Russia, 46%)

• High market concentration (79% on average controlled by dominant companies)

• Mature markets except Greece, Poland but some potential in power generation

• Good interconnection but with exceptions and bottlenecks:• Poland not well connected with Czech and Slovak Republics• Greece isolated • Italy-Austria-Slovenia connections congested and inadequate

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Basic facts about South and South East EU gas markets Sources: CEER SEE Benchmark ing Report Jan 2005

National Regulatory Authorities

Gas consumption

per capita

Market size

(bcm)

% of gas from domestic production

% of gas from largest foreign country source

% controlled by largest company

Austria 1109,8 9,1 20% 59% 75%Greece

243,4 2,7 0% 75% 100%

Hungary 1470,0 14,8 19% 70% 95%Italy 1482,6 85,1 13% 32% 68%Slovenia 547,0 1,1 0% 57% 100%

Slovakia1206,6 6,5 3% 97% 100%

Poland345,5 13,2 31% 46% 100%

Czech Republic

935,6 9,6 1% 71% 100%

South-South East 990,2 142,1 14% 46% 79%

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Main market features:

• Uneven unbundling (from legal “without assets” to full ownership and control)

• Highly differentiated regulation• Tariff methodologies• Contract duration • Capacity allocation mechanisms, congestion management• Balancing rules

• Lack of upstream gas

• Poor liquidity at existing hubs (Baumgarten, Italian PSV and border points)

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Preliminary assessment of the SSE market – Regulation

Declared market

opening (%)

Transmission tariff structure

Capacity booking

procedure

Unbundling of TSO

Regulator powers with

regard to transport

tariffAustria 100% post/distance flexible legal ex-anteGreece

70%post-stamp first come

first servedlegal (by end 2006)

ex-ante

Hungary 69% entry-exit auction ownership ex-anteItaly 100% entry-exit flexible legal ex-anteSlovenia 90% post-stamp pro-rata legal ex-ante

Slovakia74%

entry-exit first come first served

none pricing method

Poland72%

distance first come first served

legal ex-ante

Czech Republic

20%post-stamp first come

first servedlegal ex-ante

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The SSE market in detail – An example: balancing

Balance period Conditions set by: Tolerance bandsPooling/trading allowed

Austria Hourly Market No ex-postCzech Republic Daily TSO yes noneGreece NA NA NA NAHungary Daily Regulator/TSO 2-8% noneItaly Daily Regulator 8% ex-postPoland Daily TSO no ex-postSlovakia Daily TSO 5% yesSlovenia Daily Regulator/TSO yes ex-ante only

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Priority I: Monitoring of Regulatory Implementation

• Update on implementation of Directive 2003/55:• Infringement procedures pending?

• Is implementation satisfactory?

• How are TSOs unbundled?

• Implementation of Regulation 2005/1775• Tariffs

• Convergence of tariff structures and balancing charges

• Capacity allocation and congestion management mechanisms

• Interruptible service

• Transparency requirements

• Balancing rules

• Regulatory powers, sanctioning regime

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• Implementation of Regulation 2005/1775 – Guidelines (already compliant/developments/no change)

• Short term capacity

• Network codes or standard contracts

• Nomination and capacity transfer procedures

• Service information available

• Inter-TSO coordination

• Maintenance information

• Technical information for shippers

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• Scope of regulatory powers

• Detailed unbundling rules• TPA tariffs• Capacity allocation criteria• Balancing regimes• Sanctions

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Priority II: Survey and analysis of the regional market and its problems

Current development of hubs and other trading activities in the region Main data on trade in existing and developing hubs Wholesale market participants and their supply share Share of short term contracts

Development of the main physical and commercial gas flows Update by country

Current and expected infrastructure development and its regulatory framework Main planned expansion of capacity, particularly interconnectors, LNG

terminals, bottleneck removal TPA exemptions and its regulation

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Practical case studies of gas transportation through the region for specific profiles (routes) by a fictive shipper: check list

Is the selected profile viable? Used by how many shippers (market shares)? Capacity transparency (data published vs. traffic light) Capacity availability (long term, short term, interruptible…) Capacity allocation methods (FCFS, auctions, open season, …) Capacity release / Use it or lose it (is it available and used?) Tariff structure: entry exit, postage stamp, distance, …? Tariff level (to be provided and assessed for selected routings) Rate of returns (negotiated vs. regulated level) Secondary capacity trading (how and how much?) Access conflicts jurisdiction (Regulator, Competition Auth., Ministry)

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Practical case studies of gas transportation through the region for specific profiles (routes) by a fictive shipper check list (cont.):

Backhaul (is it available and used?) Upstream gas (is it available?) Capacity or tariff: cross border problems (e.g non matching zones,

contract duration, capacity allocation criteria, balancing, interoperability issues)

Balancing difficulties Storage access (is it available?) Regulated end user prices (do they affect the market?) Overall assessment and critical issues, also by considering issues

mentioned under Regulation 1775 and related Guidelines

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Priority III: Transparency requirements

Access to Storage Services Separately available Access by foreign parties (used/available/not available) Regulation/competition Public service obligations Service features (strategic, load management, market

oriented…)

Hub Services available Title transfer Matching nomination Parking/loaning

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Priority IV: Interoperability issues

Gas quality issues

Infrastructure interconnection agreements

Operational balancing

How relevant are these in the region?

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Proposals (1)

Primary legislation unbundling provisions entailing full independence of TSOs in

capacity allocation, transparency

incentives on TSOs to provide a level playing field and to develop economically efficient network reinforcements

regulators fully endorsed with the role indicated by the 2nd Directive and Regulation, including substantial independence and adequate monitoring and enforcement powers

sanctioned by adequate formal agreements including a regional Memorandum of Understanding

MoU may include provisions about minimum unbundling, reciprocity and gas release (enhanced regional co-operation)

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Proposals (2)

Capacity

common guidelines for capacity reservation (one stop shop principle) at least for some part of international routes provisions for interruptible services capacity release in case of commercial congestion

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Proposals (3)

Tariffs

regional transportation tariff based on the entry-exit methodology with a regional inter-TSO compensation scheme based on the setting of a regulated allowed revenue for each

TSO could be extended to third countries, notably Switzerland and

the Balkan Republics

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Proposals (4)

New infrastructure

common Guidelines for the treatment of new gas infrastructure conditions to award exemptions from TPA rights after Article 22

of the Gas Directive, based on regional market assessment joint regulatory decision for the whole infrastructure common capacity definition and reservation procedure open season based on work already undertaken for the Energy Community

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Proposals (5)

Balancing

common guidelines for balancing including the setting of: balancing time units tolerances and charges provisions for ex-post trading

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Proposals (6)

Transparency

Guidelines of good practice on transparency and information management at EU level as already undertaken by ERGEG for the electricity sector

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End of presentation

gas regional initiative - region south-south east 1st implementation group meeting an action plan...

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