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