Zagreb, 28 September Zagreb, 28 September 20042004

TheThe South East EuropeSouth East Europe gas gas marketmarket: a preliminary analysis : a preliminary analysis of facts and opportunities from the Regulators’ of facts and opportunities from the Regulators’

perspectiveperspective

GAS TASK FORCE - GAS TASK FORCE - WG CEER SEEERWG CEER SEEER

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The CEER SEE Gas Task ForceThe CEER SEE Gas Task Force

Gas fully included in the ECSEE / Athens ProcessGas fully included in the ECSEE / Athens Process

Regulatory Authorities have an important role to play in the Regulatory Authorities have an important role to play in the establishment of a SEE regional gas marketestablishment of a SEE regional gas market

In In February 2004 February 2004 the CEER the CEER SEEER WG SEEER WG created created the Gas TFthe Gas TF AEEG (leader), ANRGN, RAE, E-Control, EMRA, SERC New Regulators and Ministries of countries w/o Regulators invited

to participate

Objective Objective of the GAS TF: of the GAS TF:

“to provide the regulatory input necessary for the development of the regional natural gas market in the SEE region and compatibility with EU legislation

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Scope of the Scope of the GAS GAS TFTF

WORK of the WG CEER GAS TF, 2004:WORK of the WG CEER GAS TF, 2004:

1.1. Assess the current status of the national gas markets of the Assess the current status of the national gas markets of the countries of the region, with a view to prepare a report on the countries of the region, with a view to prepare a report on the existing situationexisting situation

2.2. Develop proposal related to the next steps to be taken by the WG Develop proposal related to the next steps to be taken by the WG on the optimal development of the gas market in the SEE regionon the optimal development of the gas market in the SEE region

3.3. Elaborate the methodology to be used by the SEEER WG for the Elaborate the methodology to be used by the SEEER WG for the “know-how” transfer process and the experience gained through the “know-how” transfer process and the experience gained through the Madrid Process to the SEE REMMadrid Process to the SEE REM

4.4. Start to develop a medium term view of the SEE integrated gas Start to develop a medium term view of the SEE integrated gas marketmarket harmonised with EU market harmonised with EU market

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GAS market in SEEGAS market in SEE

DELIVERABLES OF THE GAS TF:DELIVERABLES OF THE GAS TF:

1 - Market structure and dynamics:1 - Market structure and dynamics:

Demand pattern for each country, including its split by sector; Supply portfolio, including indigenous production and imports; Existence of long term, take-or-pay contracts; Demand forecast and the possible future sources of supply; Tariffs methodology Existing cross border trading activities Key players and their role;

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GAS market in SEEGAS market in SEE

DELIVERABLES OF THE GAS TF:DELIVERABLES OF THE GAS TF:

2 - 2 - EExisting xisting and planned and planned natural gas infrastructurenatural gas infrastructure : : Transmission network Distribution network LNG facilities Storage facilities New projects

3 - The status of national gas market3 - The status of national gas market liberalization , liberalization , including transit and compliance with the EU Gas including transit and compliance with the EU Gas DirectiveDirective..

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GAS market in SEEGAS market in SEE

DELIVERABLES OF THE GAS TFDELIVERABLES OF THE GAS TF

AA questionnaire questionnaire has has bebeenen drafted drafted and filled by and filled by Regulators (or Ministries)Regulators (or Ministries)

Preliminary results are presentedPreliminary results are presented

A full Report will be drafted for the Athens A full Report will be drafted for the Athens ForumForum

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GAS market in SEEGAS market in SEE: The Market: The Market

"Neıghbours"100.8932%1286.9

Albania 0,03 N/A N/A 1,2% 9,5Austria 8,90 N/A N/A 19,0% 398,5Bosnia/Herzegovina 0,18 N/A N/A 4,6% 22,2Bulgaria 2,91 3,20 3,90 12,0% 699,4Croatia 2,64 2,70 3,30 23,4% 334,3Greece 2,40 542,0Hungary 14,56 14,49 15,97 42,2% 1383,1Italy 76,40 84,00 91,00 33,2% 38508,1Macedonia 0,11 N/A N/A 3,0% 10,0Romania 18,30 18,40 20,40 38,3% 1682,4Serbia 2,22 2,60 3,05 13,0% 38,7Slovenia 1,03 N/A N/A 13,1% 14,4Turkey 21,20 24,59 36,40 23,0% 10311,3

Country Market size (Bcm)

Share of gas in Primary energy

Gas consumption/pc

Exp. Market size in 2005

Exp. Market size in 2010

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GAS market in SEEGAS market in SEE: Industry and infrastructure: Industry and infrastructure

"Neıghbours"100.8932%1286.9

Austria 7 20 32% N/A N/ABosnia/Herzeg. 3 3 0% 48,1 245,1Bulgaria 1 34 15% 215,3 100,9Croatia 1 38 21% 238,7 3561,0Greece 0% 0,0 0,0Hungary 1 11 23% 507,5 7142,3Italy 2 560 16% 546,5 3619,8Macedonia 1 1 0% 47,7 15,3Romania 1 19 14% 514,5 165,7Serbia 1 34 36% 193,0 896,4Slovenia 1 16 0% 483,9 1127,5Turkey 1 7 0% 67,3 210,3

Transmission lines/pc

Distribution lines/pc

Country # of TSO's # of DSO's Storage Working gas as % of annual consumption

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GAS market in SEEGAS market in SEE: Supply: Supply

"Neıghbours"100.8932%1286.9

Austria 23,5% 58,0% 156% 0%Bosnia/Herzegovina 0,0% 100,0% 556% 0%Bulgaria 0,5% 99,5% 619% 0%Croatia 59,0% 41,0% 45% 0%Greece N/A 0%Hungary 20,3% 70,4% 133% 0%Italy 17,6% 31,1% 114% 5%Macedonia 0,0% 100,0% 1091% 0%Romania 70,5% 29,5% 153% 0%Serbia 15,0% 85,0% 239% 0%Slovenia 0,0% 52,0% N/A 0%Turkey 3,0% 58,0% 167% 28%

Cross border pipeline capacity as % of consumption

LNG import capacity as % of consumption

Country % of gas from domestic production

% of gas from largest foreign country source

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SEE GAS SEE GAS : Market and Infrastructure: Market and Infrastructure

Sizeable total market (50 Bcm/year in Balkans, Turkey)Sizeable total market (50 Bcm/year in Balkans, Turkey)

Only Romanian market nearly matureOnly Romanian market nearly mature

Turkey and Bulgaria are fast developing marketsTurkey and Bulgaria are fast developing markets

Rational structure of network industries (National TSO, Rational structure of network industries (National TSO, Regional or Provincial DSO)Regional or Provincial DSO)

Inadequate infrastructure, notably distribution and Inadequate infrastructure, notably distribution and storagestorage

Domestic resources limited except RomaniaDomestic resources limited except Romania

Need to diversify external supplies, including LNGNeed to diversify external supplies, including LNG

Large cross border flows within SEE, likely to increaseLarge cross border flows within SEE, likely to increase

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SEE GASSEE GAS:: Market structureMarket structure

"Neıghbours"100.8932%1286.9

Austria 75% 97% Yes 100%

Bosnia/Herzeg. 100% 100% No 0%Bulgaria 100% 100% No 82%Croatia 100% 100% No 45%Greece 0%Hungary 100% 100% No 67%

Italy 68% 88% Yes 100%

Macedonia 100% 100% No 0%Romania 42% 82% Comp. policy 40%

Serbia 100% 100% No 49%Slovenia 100% 100% No/Yes 90%Turkey 97% 100% Yes 80%

Declared market opening (% )

Country % of gas controlled by 3 largest company

% of gas controlled by largest company

Gas release programme

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SEESEE GAS: Regulation GAS: Regulation

"Neıghbours"100.8932%1286.9

Austria legal legal ex-ante post/distance flexibleBosnia and Herzegovina

legal (no unb. in Republika Srpska

legal no none none

Bulgaria management management ex-ante post 1st come 1st servedCroatia legal Legal monitoring

powerspost 1st come 1st served

F.Y.R. of Macedonia

legal (expected) legal (expected) ex-ante (expected)

to be defined to be defined

GreeceHungary accounts accounts ex-ante post (?) auctionItaly legal legal ex-ante entry-exit flexibleRomania legal legal ex-ante post 1st come 1st servedSerbia management

(expected)management (expected)

ex-ante (expected)

to be defined to be defined

Slovenia legal accounts ex-ante post-stamp 1st come 1st servedTurkey legal legal ex-ante entry-exit

(expected)pro-rata

Transmission tariff structure

Capacity booking procedure

Unbundling transmission system operator

Unbundling distribution system operator

Regulator

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SEE GAS SEE GAS : Market structure and Regulation: Market structure and Regulation

Wholesale supply monopoly in most countriesWholesale supply monopoly in most countries

No pipe to pipe competitionNo pipe to pipe competition

Some eligibility in most countriesSome eligibility in most countries

Legal unbundling of TSOs, DSOs in most countriesLegal unbundling of TSOs, DSOs in most countries

Postage stamp tariffs in most countriesPostage stamp tariffs in most countries

Gas industry regulated in all countriesGas industry regulated in all countries

Indipendent regulators established in most countriesIndipendent regulators established in most countries

TPA provisions mostly inadequateTPA provisions mostly inadequate

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SEE GAS marketSEE GAS market: goals that cannot be missed: goals that cannot be missed

1.1. EEvolution at EU level (Implementation of Directive volution at EU level (Implementation of Directive 20032003//55/EC, Proposed Regulation on conditions of 55/EC, Proposed Regulation on conditions of access to the gas transmission network, Madrid access to the gas transmission network, Madrid Process)Process)

2.2. SSpecific circumstances and particularities of the pecific circumstances and particularities of the ECSEE ECSEE countries, notably the need to expand gas countries, notably the need to expand gas infrastructure and consumer accessinfrastructure and consumer access

3.3. IInteraction between electricity and gas marketsnteraction between electricity and gas markets, , notably environmental policy objectivesnotably environmental policy objectives

4.4. RRole to be played by the SEE region as a route for ole to be played by the SEE region as a route for the transit of gas between Eastern resources and the transit of gas between Eastern resources and Western consumersWestern consumers

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SEE GAS marketSEE GAS market: benefits and : benefits and opportunitiesopportunities

Remarkable benefits are expected for all involved Remarkable benefits are expected for all involved countries and parties:countries and parties: Marketing opportunities for existing and new suppliers New massive infrastructures to be developed and operated by

TSOs, DSOs in SEE countries New customers to gain access to natural gas increased in SEE

countries Existing customers to benefit from economies of scale New sources of supply available for EU Member States Environmental quality improvement, contribution to achieving

Kyoto targets Increased security of supply in a common market An integrated EU-ECSEE natural gas market

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SEE GAS marketSEE GAS market: benefits and opportunities: benefits and opportunities

New infrastructure, included among EU projects of New infrastructure, included among EU projects of common interest, is under construction or under study common interest, is under construction or under study

Turkey - Greece;Turkey - Greece;

Greece – Italy; Greece – Italy;

Turkey - Bulgaria - Romania - Hungary – AustriaTurkey - Bulgaria - Romania - Hungary – Austria (Nabucco) (Nabucco); ;

Greece – FYRoM – Serbia – Bosnia - Croatia – SloveniaGreece – FYRoM – Serbia – Bosnia - Croatia – Slovenia

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SEE GAS marketSEE GAS market: challenges: challenges Most benefits can be achieved through a single market, Most benefits can be achieved through a single market,

most national markets too smallmost national markets too small

ECSEE commitment to implement harmonized ECSEE commitment to implement harmonized regulation neededregulation needed

Cost reflective tariffs required to promote new Cost reflective tariffs required to promote new infrastructureinfrastructure

Large infrastructure projects to be regulated in line with Large infrastructure projects to be regulated in line with Directive 2003/55/ECDirective 2003/55/EC

Harmonized and stable regulation to be provided for a Harmonized and stable regulation to be provided for a common ECSEE marketcommon ECSEE market