Athens, 9 June 2008 11 th RCC Meeting Meeting Guide.

Athens, 9 June 2008

11th RCC Meeting

Meeting Guide

2 11th RCC meeting, Athens, 9 June 2008

1. Agenda

Agenda TopicsRapporteur

13:30 Arrival and registration

14:00 1. Opening Approval of the agenda Approval of minutes of the 10th RCC meeting Review of action points

Co-chairs

14:15 2. Review of the agenda of the 4th SG meeting Co-chairs

14:25 3. Decision reg. the signing of the MoU amongst RCC members Co-chairs

15:00 4. Updates Creation of the strategic advisory panel (nominations received, composition of the panel) Update of the route assessment Preliminary results of the PwC study Outline of a potential case study to be undertaken by EWI, University of Cologne

Co-chairs

16:15 5. Review of progress made so far and next steps Key priorities in the region Cooperation and coordination (RCC & TSOs) Capacity, trading and transparency related issues Moving forward: Operationalising the strategic priorities

Co-chairs

17:00 6. Closure Co-chairs


1. Review of agreed action points

Action Description Who

AP1

RCC co-chairs to ensure that both order form and questionnaire are circulated to all RCC members. Those RCC members who are interested in participating are asked to contact Mr. Smole ([email protected]) directly by 15 April 2008.

Completed

AP2

RCC co-chairs to circulate the updated version of the MoU to all RCC members.RCC members to check with their authorities (i) whether the text is fine, (ii) whether they are willing to sign the MoU, (iii) who will be the signing party, and (iv) whether they appreciated the idea of a separate web based platform within the CEER area.Responses to be submitted to Dan Rieser ([email protected]) and Rosita Carnevalini ([email protected]) by 25 April 2008.

Completed

AP3Bulgaria, Romania and Hungary to be better involved in the process of the ERGEG GRI REM SSE and the MoU.

Completed

AP4AEEG to provide an update on strategic routes and transparency to the EC.

Completed

AP5RCC co-chairs to approach the EWI with a formal request to provide an offer/present their natural gas flow model at the next RCC meeting.

Completed


2. Review of the agenda of the 4th SG meeting

Main agenda items:

Cooperation and coordination MoU between NRAs of the region Strategic advisory board – Purpose and composition Cooperation between TSOs in the region EWI - model-based analysis of infrastructure projects and market integration in

SSE

Capacity, trading and transparency related issues Regional network integration – EFET REETS – Update Conclusion of IPAs/OBAs in Baumgarten Development of hubs: CEGH & PSV Infrastructure development PwC study impediments to gas trading in SSE


3. Memorandum of Understanding

Status of intended signatories Austria Yes Bulgaria Yes Czech Republic Yes Greece Yes Hungary No response Italy Yes Poland Yes Romania Yes Slovakia Yes Slovenia Yes



Purpose: Internal consultation

Consultations on decisions which cover more than one jurisdiction Where regulatory framework might result in incompatible regulation for

cross border flows, NRAs will inform all relevant NRAs consult with other affected NRAs in order to minimise obstacles to cross border trade

Inter-NRA consultation of Article 22 exemption applications



Purpose: Best practice in the region

Contact persons for communication between NRAs for facilitating information exchange

Common understanding on key regulatory functions and exchange of best practice information on capacity allocation mechanisms long-term capacity contracts measures to prevent capacity hoarding imposition of obligation to network extension

Creation of a platform for easier information exchange on regulatory issues (e.g. gas network losses)



Purpose: Harmonisation of market rules

NRAs to consider impact of current regulatory framework and of any proposed changes to this framework on other markets in the Region

NRAs to seek to harmonize the regulatory frameworks where practicable to ensure compatibility and facilitate cross-border gas flows and trade

Possible regional public consultations of all stakeholder in the Region on changes in a regulatory framework in one MS of the Region



Main areas: Co-ordination, information and harmonisation

Regulatory Co-ordination Regulation of the Gas Market Sharing of Information Consultation Avoidance of Inconsistency of Action

Operation of MoU Term of MOU and Review Dispute Resolution

Aim should be to make cooperation visible to the outside world SSE Regulators‘ network



Next steps Launch of online platform: SSE Regulators’ Network

Accessible via existing CEER/ERGEG Login

the internal parts of the website are only visible for SSE NRAs Internal consultation

E-Control invites to comment NIC’s new application for exemption

Best practice in the region (e.g. gas network losses)

All input will edited by Kerstin Wernig([email protected])


4. Strategic advisory panel

Update on nominations received for the strategic advisory panel (‘Programme Board’) Some nominations received TSOs unsure as to how to proceed

GRI REM SSE experiences with the process of setting the panel up Well-balanced representation Transparency in the selection approach Transparency in the work itself

Statutes for the work of the panel Formal statutes being drafted in GRI REM NW Similar statutes to be considered for GRI REM SSE



Purpose of the panel:

to achieve greater level of stakeholder involvement and commitment

to provide advice and guidance for RCC, eg. prioritization and refining of key areas of work

to better communicate progress to all stakeholders

Well balanced representation!



Idea still subject to finalisation

Nomintation & composition under discussion

First version of ‚Terms of reference‘ have been drafted

RCC to report back to all stakeholder and implementation group members at the next IG meeting

Nomination period extended until 10 September 2008


4. Nominations received

Nominations received for the strategic advisory panel(‘Programme Board’) Producers (OGP – Gazprom?) no nomination TSOs (GTE) no nomination SSOs (GSE) no nomination Suppliers (Eurogas) no nomination Traders (EFET) Mr. Stephan Ressl nominated Hub Operators no nomination Consumers (IFIEC, CEFIC) no nomination Governments no nomination

Nomination period exended until 10 September 2008


4. Assessment on Selected Transportation Routes

BackgroundBackground

• Study conducted by RCC in 2006 in order to prioratize SSE – GRI Action Plan

• Consultation with all stakeholders and presentation at the 2nd SG in Milan (March 2007)

The need for an up-date The need for an up-date (IG, Vienna April 8(IG, Vienna April 8thth, 2008):, 2008):• To verify improvements after 2 years of SSE – GRI activities

• To identify persisting critical issues and to focus on new emerging ones

• To support and integrate parallel works (e.g. PwC study on “barriers to entry” into the SSE – GRI)


Which are the transportation routes?

• route 1: UKRAINE-SK-CZ-GER

• route 2: UKRAINE-SK-A-SI

• route 3: UKRAINE-SK-A-I

• route 4: UKRAINE-SK-A-GER

• route 5: BELARUS-PL-GER

• route 6: ALGERIA-I-A-SK

• Proposal of assessment on new additional routes, covering Romania, Bulgaria Greece and Hungary


4

6

Where are the transportation routes?

1

23


5

Where are the transportation routes?


Focus of the current analysis

• available capacities

• effective congestion management

• how tariffs are computed and publication of tariff information

• operational balancing agreements at interconnection points


Available firm capacity (2008 vs 2007)

Eustream

SK

RTN

CZ

BOG

A

TAG

A

OMV

A

GP

SI

SRG

I

GAZ System

PL

route 1UK-SK-CZ-GER

Yes Yes

route 2UK-SK-A-SI-I

Yes

No

(physical cong.)

Yes No

route 3UK-SK-A-I

Yes

No

(physical cong.)

route 4UK-SK-A-GER

Yes

No

(contr. cong.)

route 5BE-PL-GER

Yes

route 6AL-I-A-SK

No

(backhaul) Yes


Short term congestion management (2008 vs 2007)

Eustream

SK

RTN

CZ

BOG

A

TAG

A

OMV

A

GP

SI

SRG

I

GAZ System

PL

route 1UK-SK-CZ-

GER

bulletin boardinterr. UIOLI,

bulletin board

route 2UK-SK-A-SI-I

bulletin board

interr. mandatory

UIOLI, bulletin board

interr. UIOLI,

bulletin board

capacity goes with

customers, interr.

route 3UK-SK-A-I

bulletin board

interr.

mandatory UIOLI,

bulletin board

route 4UK-SK-A-GER

bulletin board

interr. UIOLI,

bulletin board

route 5BE-PL-GER

interr. UIOLI

route 6AL-I-A-SK

No

(backhaul)

bulletin board


Capacity expansion (2008 vs 2007)Eustream

SK

RTN

CZ

BOG

A

TAG

A

OMV

A

GP

SI

SRG

I

GAZ System

PL

route 1UK-SK-CZ-GER

no plansno

plans

route 2UK-SK-A-SI-I

no plans

on going not

demand driven

no plans planned

route 3UK-SK-A-I

no plans

on going not

demand driven

route 4UK-SK-A-GER

no plansopen

season

route 5BE-PL-GER

no plans

route 6AL-I-A-SK

backhaul planned


Tariff applied (2008 vs 2007)SPP

SK

RTN

CZ

BOG

A

TAG

A

OMV

A

GP

SI

SRG

I

GAZ System

PL

route 1UK-SK-CZ-GER

E/E distance

route 2UK-SK-A-SI-I

E/Edistance

*distance distance

route 3UK-SK-A-I

E/Edistance

*

route 4UK-SK-A-GER

E/E distance

route 5BE-PL-GER

distance

route 6AL-I-A-SK

distance*

E/E

•Regulated tariffs in Austria since end 2007


OBAs between neighbouring TSOs(2008 vs 2007)

Eustream

SK

RTN

CZ

BOG

A

TAG

A

OMV

A

GP

SI

SRG

I

GAZ System

PL

route 1UK-SK-CZ-GER YES

NO

route 2UK-SK-A-SI-I

NO NO YES YES

route 3UK-SK-A-I

NO NO

route 4UK-SK-A-GER

NO NO

route 5BE-PL-GER

NO

route 6AL-I-A-SK

NO NO


Key findings by route (1)

Route 1: UKRAINE-SK-CZ-GERRoute 1: UKRAINE-SK-CZ-GER Improvements in terms of development of secondary market and

congestion mechanisms in the last years, decreasing capacity available in the Slovak part (nearly to zero); capacity increase capacity increase expected in Baumgarten after the Nord Stream pipelines comes expected in Baumgarten after the Nord Stream pipelines comes into operationinto operation. In the Slovak Republic, balancing and nomination based on Gazprom standards.

Route 2: UKRAINE-SK-A-SIRoute 2: UKRAINE-SK-A-SI Physical congestion at some interconnection points along the

route and lack of appropriate LT congestion management on TAG system.

TAG undertook to build two new compressors which will increase capacity by 1st October 2008 and by 1st October 2009.


Key findings by route (2)

Route 3: UKRAINE-SK-A-IRoute 3: UKRAINE-SK-A-I Viability represents a bottleneck to the Italian market

Lack of appropriate long term congestion management on TAG system despite new capacity available from October 2008 and 2009, also on a short term basis.

Route 4: UKRAINE-SK-A-GERRoute 4: UKRAINE-SK-A-GER The transport of natural gas on the whole route from Velke Kapusany to

Oberkappel on a firm basis is not possible due to contractual congestion at some interconnection points. Market survey launched to solve the problem.

Route 5: BELARUS-PL-GERRoute 5: BELARUS-PL-GER TPA service only under permission of shareholders (Gazprom-Export);

infringement procedure on going

Route 6: ALGERIA-I-A-SKRoute 6: ALGERIA-I-A-SK Access conditions to Tunesian and Mediterranean section and related

regulation are the main problem. Lack of harmonisation with neighbouring networks may also hinder usage for other markets


Conclusions

Despite progresses in the last two years….Despite progresses in the last two years….• positive improvements in congestion management positive improvements in congestion management

• development of secondary markets

• standard bulletin boards

• market survey

• development of IPA/OBA agreementsdevelopment of IPA/OBA agreements


Conclusions

…….there are still difficulties for newcomers in terms of .there are still difficulties for newcomers in terms of access to transportation routes in the regionaccess to transportation routes in the region

• secondary markets are still not sufficiently developed and in some case not facilitated by TSOs

• UIOLI provisions in contractual congestion are often weak

• lack of capacity is still a major shortcoming both in terms of physical capacity (e.g. TAG) and contractual one (BOG)

• inadequate LT congestion management provisions even in cases where new investments are planned

• IPA/OBA agreements still not sufficiently finalised (i.e.nomination provision based on Gazprom’s standards are still far from EAASE’s)

• still no progress on ROUTE 5 where, “TPA service may be provided only under permission of main shareholders, especially Gazprom-Export”


Conclusions

• The improvements recorded after 2 years are to a The improvements recorded after 2 years are to a large extent the result of the pro-active dialogue large extent the result of the pro-active dialogue promoted by the SSE – GRI among all stakeholders promoted by the SSE – GRI among all stakeholders

• The persisting difficulties on major transportation The persisting difficulties on major transportation routes in the region confirm the priorities of the routes in the region confirm the priorities of the Action Plan Action Plan

• There might however be the need to focus more on:There might however be the need to focus more on:

• the effective state of development and expected impact of the effective state of development and expected impact of new investments in the regionnew investments in the region

• short term congestion management mechanisms’ short term congestion management mechanisms’ effectivenesseffectiveness

• additional analysis on: balancing; hub development additional analysis on: balancing; hub development


4. Preliminary results of PwC study

Next steps: Who else is interested in ordering the results of the study? AEEG,

AGEN-RS and E-Control have ordered already. Check country reports before publication

Final report together with a cover letter should be sent to all stakeholders of the REM SSE

RCC to prepare a statement on measures to address the impediments identified in the study

NRAs/MS to derive measures on national level Refining of priorities of the REM SSE where necessary


4. Model-based analysis of infrastructure projects

Presentation by Mr. Lochner

Institute of Energy Economics, University of Cologne


4. Model-based analysis of infrastructure projects

Next steps:

Proposal to start a joint project together with TSOs in the region?

Results as important input to future Open Season Procedures

Invitation at SG to participate in the commissioning of an analysis for the SSE region?

Expected costs (for 6-8 scenarios to be modelled):45.000 to 55.000 Euros


Action Plan – Priority 5

Regional Entry-Exit Tariff System (REETS)

REETS as the final step of a regional integration process which includes interconnection agreements, harmonisation of transmission rules and access rules, co-ordinated investment planning, regional balancing and joint regional network operations

promotion of a cost reflective transportation pricing systems that makes easier market access for new shippers, increases liquidity and foster hub development

4. Regional E/E system – Background


Milan, March 2007: presentation of the document: “On requirements to introduce a regional one stop shop provider and an entry exit tariff system. A preliminary study.”

Maribor, October 2007: presentation of benchmarking results and simulation of introduction of REETS “Towards a Regional Entry-Exit System in the SSE Gas Market. A preliminary study”, presented at the 3rd IG Maribor 9th October 2007

Prague, January 2008: presentation of the final version of the paper and launch of a two months consultation

The revised version, after consultation, presented at the 4th SG in Athens and published on the web site

4. Regional E/E system – Background


The study provides theoretical arguments both for and against the introduction of regional entry exit tariff system (REETS)

++ efficiency -- tariffs unstable++ liquidity -- changes in current users

tariffs and impact on final prices

++ market power reduction -- heavily affected by changes of transport patterns induced by

pipeline reinforcements or by new routes

++ investment incentives

4. Regional E/E system – Summary I


The study provides a stylised simulation of a regional entry-exit tariff system, using approximate though plausible data

Main assumptions: no change in total TSO revenue entry points at import points in the region and main domestic and storage areas; exit points at exports points and virtual national consumption areas, revenue = costs

Simulation of increased costs (+20%) to pay for enhancements of selected congested pipelines

4. Regional E/E system – Summary II


Transportation costs are generally significantly reduced by the REETS for destinations that are farther from the gas source, and increased for closer ones (increased competition between gas sources)

Increases in transportation costs do not exceed 2.5% of the average European border price in the worse case, (i.e. about 1% of the retail price for small customers and be partly offset by switching to supply sources whose transportation cost was reduced)

Tariffs would be moderately increased by including the incremental cost of pipeline reinforcement

The inclusion in the system of major new routes that substantially affect transportation patterns, could lead to large tariffs increases falling disproportionately on affected areas, at least in the short term: an entry exit tariff system for TPA to transportation services should go hand in hand with a system of exemptions for new infrastructure

4. Regional E/E system – Simulations I


Ex ante inter TSO compensation mechanisms seems relatively easy to be set up.

Competition would be stimulated also by the transparency and simplicity of the tariff system, and even more by its likely stability.

Most difficulties origin from lack of harmonisation in contract, capacity booking, allocation mechanisms, as well as congestion management and balancing

4. Regional E/E system – Simulations II


Paper: “Towards a Regional Entry-Exit System in the SSE Gas Market. A preliminary study”, 3rd SG Prague 22rd January 2008 stakeholders invited to comment by 31st March 2008

Only two comments received by stakeholders OMV Geoplin plinovodi

OMV position:

strong reservations on the entry-exit methodology itself and its efficacy in managing cross-subsides: LT contracts and distance tariffs are more efficient in the gas market

a clear scenario of current and future shippers is lacking as well as the impact of different flows of gas

inter TSO compensation is a politically sensitive issue and more critical than described in the paper as it has a high conflict potential

4. Regional E/E system – Consultation process


Geoplin plinovodi comments:

Requests of clarifications on the methodology used to calculate some data referred to

Geoplin plinovodi network (tariffs, estimated transmission costs, booked capacity)

how domestic pipelines costs are covered

Provision of alternative data which were welcome and used in new simulation: no major changes in results es expected (Geoplin plinovodi 2% of TSO costs in the region) but more accuracy in the paper

4. Regional E/E system – Consultation process


The study clarifies that it includes costs related to the main lines which are used or might be used for international routes; costs of secondary network are covered by separate tariffs

It discusses cost reflectivity in the case of meshed transport systems and use for backhaul flows

It includes additional considerations on the impact on the EE model of new relevant capacity expansion

4. Regional E/E system – Revised version


It provides a medium long term vision and a tool to: better identify major obstacles in the process of market

integration, in the light verify consistency of the single step of the process

The study might be amended or update in the future in case of significant changes in the underlying assumptions

4. Regional E/E system – Role of the study


6. Closure: Any other business

Croatia as observer in SSE Region


6. Date and location of next meeting

ANRE has agreed to host the next RCC and IG meeting

Date tbd: beginning of October (week commencing 13 October) in Bucharest

Athens, 9 June 2008 11 th RCC Meeting Meeting Guide.

Documents

Transcript of Athens, 9 June 2008 11 th RCC Meeting Meeting Guide.