EFET review of CESEC markets

EC CESEC Gas Plenary7 February 2019, Brussels

Doug WoodMember of the EFET Board, d.wood@efet.org

1. 2018 update

2. CESEC summary

3. Breakdown by market

4. Conclusions

Contents

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2018 Update

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EFET Gas Hubs study - Best practice development modelCriteria Responsible party Heading 2018 Max Score 2018

1.a NRA and/or MinistryTransparency and consultation

1.51.b TSO/Market Area

Manager/Market Operator1.5

2 TSO Entry-exit system established 13 TSO Title Transfer 14 TSO Cashout rules (long short positions imbalances set to zero at the end of the day

with payment/receipt of imbalance charge in local currency/MWh)1

5 TSO/Market Area Manager/Market Operator

TSO system balancing 1

6 NRA/Ministry Licensing and reporting obligations 17 NRA Resolve market structural and concentration issues (defined role for historical

player if flexibility/liquidity is scarce)1

8 NRA, TSO or Market Operator

Hub fees (not fees relating to participating on a exchange or trading platform) 1

9 Market Establish a reference price at the hub for contract settlement in the event of default

1

10 Market Standardised contract 111 Market Price Reporting Agencies producing daily prices at the hub 1

12 Market Voluntary market makers operating at the hub 113 Market Brokers 1.514 NRA Establishment of exchange 1.515 Market Hub price becomes reliable and used as benchmark 1

16.a Market Hub spot (shorter than monthly products) liquidity 116.b Hub forward (monthly products or longer) liquidity 1Total 20

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Annual scorecard 2018 update

Cacacaca.

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EFET 2018 Gas Hub Benchmarking Study

2014 2015 2016 2017 2018

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CESEC summary

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CESEC scores, previously…

Cacacaca.

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NBP TTF Italy Austria Hungary Greece Slovakia Romania BulgariaFirst eight Remaining Criteria

EFET 2016 Gas Hub Assessment*

* Slovenia and Croatia not evaluated

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2018 Top 8 criteria*

Cacacaca.

Criteria Heading 2018 PSV AT VTP HU MGP SK Greece BG Romania

1.a Transparency and consultation 1 1 0.5 0.5 0.5 0 0.51.b 1 1.5 0.5 1 0.5 0.5 0.5

2 Entry-exit system established 1 0.5 1 1 1 0.5 0.5

3 Title Transfer 1 1 1 1 1 1 0

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Cashout rules (long short positions imbalances set to zero at the end of the day with payment/receipt of imbalance charge in

local currency/MWh)

1 0.5 1 1 0.5 0.5 0

5 TSO system balancing 0.5 0.5 0.5 0.5 0.5 0.5 0

6 Licensing and reporting obligations 0.5 1 0 0.5 1 0.5 0

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Resolve market structural and concentration issues (defined role for historical player if

flexibility/liquidity is scarce)1 1 0 0 0.5 0 0

* Slovenia and Croatia not evaluated

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IT AT HU SK GR BG RO

2016 Top8 2016Rest 2018Top8 2018Rest

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Breakdown by market

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• Improved levels of transparency and consultation from NRA and Ministry from low start, now producing some documents in English, with workshops encouraged by EC

• Concept model was consulted, but no further progress• Entry-exit coexists with transit• Tolerances and non-daily cashout• Hub balanced through services• Complex licence application procedures / burdensome

reporting (under consultation to become more onerous)• No market structural measures

Romania

Criteria Heading 2018 RO

1.a Transparency and consultation 0.5

1.b 0.5

2Entry-exit system established

0.5

3 Title Transfer 0

4

Cashout rules (long short positions imbalances set to zero

at the end of the day with payment/receipt of imbalance charge in local currency/MWh) 0

5 TSO system balancing 0

6Licensing and reporting

obligations 0

7

Resolve market structural and concentration issues (defined

role for historical player if flexibility/liquidity is scarce) 0

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Romania (continued)

• Proposed gas price cap• Below commercial value of gas• Producers to sell at cap but still exposed to

royalties based on Austrian VTP which has been 60% higher than cap

• Turnover tax increase from 0.1% to 2%• Possible retrospective application to 2018

• Centralised market obligation• Restricts contractual freedom• Treats local production more onerously than

imports; • Import obligation• Negatively affects security of supply

• Retail customers allowed to return to “captivity” • Insufficient justification for tariffs as assessed by

ACER under NC TAR implementation.

• Two market operators OpCom (previously subject to antitrust proceedings on power, and was proposed as monopoly for gas), BRM

• BRUA• Lack of transparency around changes to

original project• Storage obligation• No market access for UK entities in event of

hard Brexit• EU presidency – potential impact on progress• Continued unpredictable intervention leading

to frustration and even cancellation of commercial projects

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• Transparency• Poor levels of transparency and consultation from NRA and

Ministry (e.g. Entry-Exit scheme not well consulted); • Improved levels of consultation by TSO (with EC, in English

language) – EC workshops in 2018 – though open season rules not widely distributed.

• VTP technically exists but…• Co-exists with point-to-point• Dominated by Bulgargaz• Contractual congestion in network

• Slow implementation of NC BAL• Tolerances remain (positions not set to zero)• Poor access to flexibility

• Complex licence application procedures; unnecessary inclusion in Law on Public Offering of Securities to increase reporting burden

• No market structural measures

Bulgaria

Criteria Heading 2018 BG

1.a Transparency and consultation 0

1.b 0.5

2Entry-exit system established

0.5

3 Title Transfer 1

4

Cashout rules (long short positions imbalances set to zero

at the end of the day with payment/receipt of imbalance charge in local currency/MWh) 0.5

5 TSO system balancing 0.5

6Licensing and reporting

obligations 0.5

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Resolve market structural and concentration issues (defined

role for historical player if flexibility/liquidity is scarce) 0

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• Gas hub design study• Awarded to EMG and AF Consult in March 2018; preliminary results presented in Brussels• Bulgartransgaz set up Balkan Gas Hub subsidiary to run trading platforms (Jan 2019)

• Talk of physical and trading gas hub; no involvement of EFET; “not that kind of hub”• Gas distribution & dispatch centre being built in Varna

• MoU with CEGH (Dec 2018)• Currently low confidence in unbundling• EC Case against BEH hindering access to infrastructure

• Resulted in fine of €77m• Acceptance of fine rather than behavioural remedies/commitments

• Legacy transport contracts• Lack of progress on gas release programme• Gazprom commitments but no observable impact on market• Improved transparency on tariffs• Not all contracts switched to energy units (storage)• Outstanding issues with customer switching, metering, capacity booking• No market access for UK entities in event of hard Brexit

Bulgaria (continued)

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• Legislation transparent & accessible on the internet, with regular consultation but not in English

• Regular updates of the code & market arrangements accessible on the internet (many of them in English on TSO's site) but no regular shipper meetings or consultation workshops

• Established e/e system with a single Virtual Nomination Point (VNP)-although not a VTP at time of assessment as balancing did not happen there, a balancing platform has since been introduced in 2018H2, though public information not clear

• Long/short positions imbalances set to 0 at the end of the day with payment/receipt of imbalance charge but tolerances still apply at 3% until 31/12/18 (tbc)

• STSP used from 1/7/18 with balancing services at Revithoussa

• So long as its market share exceeds 60%, DEPA has to supply 17% (2018) of its annual long-term contract quantities through electronic auctions (18% in 2019 and 20% in 2020). Auction reserve price must reflect real cost.

Greece

Criteria Heading 2018 Greece

1.a Transparency and consultation 0.5

1.b 0.5

2Entry-exit system established

1

3 Title Transfer 1

4

Cashout rules (long short positions imbalances set to zero

at the end of the day with payment/receipt of imbalance charge in local currency/MWh) 0.5

5 TSO system balancing 0.5

6Licensing and reporting

obligations 1

7

Resolve market structural and concentration issues (defined

role for historical player if flexibility/liquidity is scarce) 0.5

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• Settlement price now as NC BAL• EFET STAs widely used in the-non organised-secondary market (DEPA increasingly adopts it for

cross-border trade)• No PRA• No market-makers• Exchange expected 2020• No market access for UK entities in event of hard Brexit

Greece (continued)

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• Balancing services apply and balancing was done on a single platform. In 2018H2, TSO carried out balancing tests and is able to acquire balancing gas on different platforms.

• Reporting overly bureaucratic

• Monthly and variable fees apply to title transfer service• Interim imbalance charge methodology includes CEGH as

proxy

• Liquidity highly dependent on UA market• OTC liquidity decreased in 2018

• No market access for UK entities in event of hard Brexit

Slovakia

Criteria Heading 2018 SK

1.a Transparency and consultation 0.5

1.b 1

2Entry-exit system established

1

3 Title Transfer 1

4

Cashout rules (long short positions imbalances set to zero

at the end of the day with payment/receipt of imbalance charge in local currency/MWh) 1

5 TSO system balancing 0.5

6Licensing and reporting

obligations 0.5

7

Resolve market structural and concentration issues (defined

role for historical player if flexibility/liquidity is scarce) 0

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• TSO has access to storage flexibility resulting in reduced flexibility actions and avoidance of STSPs

• ACER balancing report identifies that TSO has access to storage flexibility, which has led to infrequent balancing actions and avoidance of STSPs

• Reporting overly bureaucratic

• Liquidity increasing, PRAs active• CEEGEX active

• No market access for UK entities in event of hard Brexit

Hungary

Criteria Heading 2018 HU MGP

1.a Transparency and consultation 0.5

1.b 0.5

2Entry-exit system established

1

3 Title Transfer 1

4

Cashout rules (long short positions imbalances set to zero

at the end of the day with payment/receipt of imbalance charge in local currency/MWh) 1

5 TSO system balancing 0.5

6Licensing and reporting

obligations 0

7

Resolve market structural and concentration issues (defined

role for historical player if flexibility/liquidity is scarce) 0

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Conclusions

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Conclusions

• Improvements observed in some markets – in particular, greater transparency, consultation including market participants, availability of information

• Political will is still strongest driver – creation of market barriers through unexpected intervention in commercial framework is especially negative to international participants and (actual and potential) investors

• EC proposals to review “licensing and other barriers increasingly seen as necessary in some markets, to be addressed by “Tailor-made regulation.

• Mixed implementation of NCs – especially BAL and TAR• Creation of a single Virtual Trading Point for trading, balancing, price

discovery still a cornerstone that does not yet exist in all markets

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