16 February 2006

Competition Directorate-General

Maria REHBINDER for the Gas Team, DG COMP

Preliminary Report – GasPresentation of DG Comp´s findings

IntroductionHub Prices

02468

10121416182022242628

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05

Pric

e (€

/MW

h)NBP Day ahead Zeebrugge Day ahead TTF day ahead

Border Prices

02468

10121416182022242628

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05

Pric

e (€

/MW

h)

Waidhaus EmdenTroll Baumgarten

Concentration

• High levels of concentration at wholesale level

• Incumbents largely control imports and domestic production

• Traded markets dominated by incumbents

Incumbent share of imports Incumbent share of domestic production

Austria 80-90% -

Belgium 90-100% -

Czech Republic 90-100% -

Denmark - 80-90%

France 90-100% -

Great Britain 20-30% 40-50%

Germany 90-100% 80-90%

Hungary 90-100% 90-100%

Italy 60-70% 80-90%

Netherlands 50-60% 90-100%

Poland 90-100% 90-100%

Slovakia 90-100% -

Vertical integration – access to inputs

• Almost all commercially available gas production is covered by incumbents’ long-term contracts

• Inquiry looked at a number of features of the contracts that reduce incentives to provide liquid supply to gas hubs

Vertical foreclosure – infrastructure • Gas infrastructure remains mostly owned by

incumbents and not sufficiently unbundled

• Long-term capacity reservations in “transit” pipelines and storage

Storage capacity booked long term

0%10%20%30%40%50%60%70%80%90%

100%Co

untry

A

Coun

try B

Coun

try C

Coun

try D

Coun

try E

Coun

try F

Coun

try G

Coun

try H

Coun

try I

% o

f tot

al s

tora

ge c

apac

ity

Excluded from TPA booked capacity: less than 1 yearbooked capacity: between 1 and 5 years booked capacity: 5 years and morelength not specified available capacity

Market integration – gas import routes

Transit capacity– East/West axis

East/West axis: largely sold out until 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Less than 2 years Btwn 2 and 5 years Btwn 5 and 10 years More than 10 years

Prim

ary

capa

city

rese

rved

/ ut

ilise

d (%

of m

axim

um

tech

nica

l cap

acity

)

Incumbent-affiliate Producer Without contract Average unsold

Maximum utilisation

Transit capacity– East/West axis

East/West axis: who gets primary/secondary capacity?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prim

ary

Sec

onda

ry

Prim

ary

Sec

onda

ry

Prim

ary

Sec

onda

ry

Prim

ary

Sec

onda

ry

Cap

acity

rese

rved

/ ut

ilise

d (%

of m

axim

um

tech

nica

l cap

acity

)

Incumbent-affiliate Incumbent non-affiliate Producer New entrant Without contract Average unsold

Less than 2 years Btw 2 and 5 years Btw 5 and 10 years More than 10 years

TransparencyPossible impact of the ‘3 or more’ rule on the Benelux-Italy axis

Assessment based on primary reservations only

Assessment based on primary and secondary reservations

Transparency provided Transparency refused

Possible impact of the ‘3 or more’ rule on the Benelux-Italy axis

Assessment based on primary reservations only

Assessment based on primary and secondary reservations

Transparency provided Transparency refused

Possible impact of the ‘3 or more’ rule on the East-West axis

Transparency provided Transparency refused

Assessment based on primary reservations only

Assessment based on primary and secondary reservations

Possible impact of the ‘3 or more’ rule on the East-West axis

Transparency provided Transparency refused

Assessment based on primary reservations only

Assessment based on primary and secondary reservations

• Gas market remains opaque and more transparency is needed

• Network users want reliable and timely information, beyond minimum requirements of EU legislation

• Confidentiality should not be used as a cloak to prevent proper disclosure

Prices – indexation

Heavy fuel oilLight fuel oil and gasoilGas price

Electricity price

OtherCoal price

Crude oilGeneral inflationFixed

UK

14,6%

16,2%

16,5%

40,1%

0,6%2,9%

1,1%

7%1,1%

Western Europe

50,1%

0,6% 30%

2%

4,9%

4,6%2,6%5,2%

Eastern Europe

47,2%

2,1%

0,8%0,7%

48,1%

1,1%

Heavy fuel oilLight fuel oil and gasoilGas price

Electricity price

OtherCoal price

Crude oilGeneral inflationFixed

UK

14,6%

16,2%

16,5%

40,1%

0,6%2,9%

1,1%

7%1,1%

Western Europe

50,1%

0,6% 30%

2%

4,9%

4,6%2,6%5,2%

Eastern Europe

47,2%

2,1%

0,8%0,7%

48,1%

1,1%

Heavy fuel oilLight fuel oil and gasoilGas price

Electricity price

OtherCoal price

Crude oilGeneral inflationFixedHeavy fuel oil

Light fuel oil and gasoilGas price

Heavy fuel oilHeavy fuel oilLight fuel oil and gasoilLight fuel oil and gasoilGas priceGas price

Electricity price

OtherCoal priceElectricity priceElectricity price

OtherCoal priceOtherCoal priceCoal price

Crude oilGeneral inflationFixed

Crude oilCrude oilGeneral inflationFixedGeneral inflationFixed

UK

14,6%

16,2%

16,5%

40,1%

0,6%2,9%

1,1%

7%1,1%

Western Europe

50,1%

0,6% 30%

2%

4,9%

4,6%2,6%5,2%

Eastern Europe

47,2%

2,1%

0,8%0,7%

48,1%

1,1%

Prices – Oil-price link vs hub prices

Conclusions

• Wholesale markets in the EU generally maintain the high level of concentration of the pre-liberalisation period

• Lack of liquidity and limited access to infrastructure prevent new entrant suppliers from offering their services to the consumer

• Transit capacity, crucial for market integration, could be used much more efficiently

• There is a lack of reliable and timely information on the markets, essential for healthy competition