GIE Conference – 3 November 2005 - 1

Unbundling & LiberalisationUnbundling & Liberalisation

Creating new challenges and opportunitiesCreating new challenges and opportunities

The ‘Belgian case’The ‘Belgian case’

Rudy Van BeurdenRudy Van Beurden

GIE Conference – 3 November 2005 - 2

FLUXYS: PROACTIVE UNBUNDLING 11-2001FLUXYS: PROACTIVE UNBUNDLING 11-2001

GAS TRANSPORTExisting company with a new name:

Fluxys

Former DistrigasFormer Distrigas

GAS SALES & SUPPLYNew company with an existing name:

Distrigas

Why proactive unbundling :• Draft proposal 2nd EU directive included legal unbundling• Market perception: legal unbundling most effective to ensure level

playing field• Strategic move: organise rather than undergo changes

GIE Conference – 3 November 2005 - 3

FLUXYSFLUXYSFLUXYSFLUXYS

SUEZ-TRACTEBEL

57.25%57.25% 31.25%31.25%

11.50%11.50%(+ 5.21% shares owned (+ 5.21% shares owned

by Suez-Tractebel)by Suez-Tractebel)1 share1 share

SUEZ

100%100%

SHAREHOLDERSSHAREHOLDERS

PUBLIGAS

FIRST MARKET OFEURONEXT BRUSSELS

BELGIAN STATEGOLDEN SHARE

•Board and Executive Committee:two federal government representatives in an advisory capacity

•Right to oppose to decisions about and transfers of strategic assets if considered prejudicial to federal energy policy

GIE Conference – 3 November 2005 - 4

Unbundling: the challengesUnbundling: the challenges

• StrategicalStrategical: : establish new objectivesestablish new objectives

• ContractualContractual: : need for formal agreements between an need for formal agreements between an increasing number of playersincreasing number of players

• CommercialCommercial: : setting up new relationships and obtain setting up new relationships and obtain information from the marketinformation from the market

• Changing/unstable Changing/unstable regulatory environmentregulatory environment

• OperationalOperational: : Gas flow management & grid balancingGas flow management & grid balancing

• InvestmentInvestment planning: planning: obtaining market information and obtaining market information and commitments in due timecommitments in due time

GIE Conference – 3 November 2005 - 5

End-consumers Fluxys

SupplierSupplierSupplier

connectionconnection

Open access to systemOpen access to system

FLUXYS’ CHALLENGES IN THE LIBERALISED GAS FLUXYS’ CHALLENGES IN THE LIBERALISED GAS MARKETMARKET

Free choice of supplierFree choice of supplier

• Put into practice framework to install level playing field for suppliers: Code of conduct

• Arrive at regulated tariffs providing sufficient return to justify investment

• Cope with highly complex interfaces in a multi-shipper environment

Adjacent operator

interconnectioninterconnection

GIE Conference – 3 November 2005 - 7

ConnectionConnectionAgreementAgreement

Transporter

Shipper/Trader

End-consumer

+ + (with connection procedure)(with connection procedure)

AllocationAllocationAgreement (at Supply Point)Agreement (at Supply Point)

Transport licenceTransport licence

Gas supply licenceGas supply licence

EligibleEligible

Transport ServicesTransport ServicesAgreementAgreement

Transportation agreements: new relationshipsTransportation agreements: new relationshipsExploring the Current Legal Environment

GIE Conference – 3 November 2005 - 8

Regulatory environmentRegulatory environment

• The ‘Belgian case’The ‘Belgian case’

– 1 federal regulator1 federal regulator

– 3 regional regulators3 regional regulators

– Different levels of market opening in each regionDifferent levels of market opening in each region

– Public distribution zones sometimes covering more Public distribution zones sometimes covering more than 1 regionthan 1 region

• Continuous changes asked by different authorities Continuous changes asked by different authorities challenge of coping with system changes challenge of coping with system changes

• Low profitability on transport and storage activities Low profitability on transport and storage activities reduces entrepreneurship reduces entrepreneurship

• Annual Annual multi-year tariffs as from 2007 multi-year tariffs as from 2007

GIE Conference – 3 November 2005 - 9

00

1010

2020

3030

4040

5050

6060

7070

8080

9090

100100

2000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

Belgium: proactive acceleration of market openingBelgium: proactive acceleration of market opening

1998 EU Gas Directive

A strong acceleration

07.01

58%

01.03

65%

07.03

83%

07.04

100%

07.07

92%

47%

08.00

100% opening 100% opening in Flemish in Flemish

regionregion

GIE Conference – 3 November 2005 - 10

Gas Flow Management & Grid BalancingGas Flow Management & Grid Balancing

• Exponential growth of data to be interchanged in a multi-shipper Exponential growth of data to be interchanged in a multi-shipper environmentenvironment

– Hourly flow nominations by shippers enabling Fluxys to set grid Hourly flow nominations by shippers enabling Fluxys to set grid configurationconfiguration

– Hourly matching information with adjacent operators to facilitate Hourly matching information with adjacent operators to facilitate cross-border transactionscross-border transactions

– Hourly flow allocations + metering data services by Fluxys Hourly flow allocations + metering data services by Fluxys enabling shippers to stay within balance and thus avoid balancing enabling shippers to stay within balance and thus avoid balancing chargescharges

• Residual balancing by Fluxys far more complicated:Residual balancing by Fluxys far more complicated:

– Gas price is main flow driver for shippersGas price is main flow driver for shippers

– Shippers can arbitrage between balancing charges in different Shippers can arbitrage between balancing charges in different systemssystems

– System integrity factors (stable inflow and gas quality) considered System integrity factors (stable inflow and gas quality) considered pure TSO concernpure TSO concern

GIE Conference – 3 November 2005 - 11

Investment planning: a complex issue in an Investment planning: a complex issue in an unbundled and regulated environmentunbundled and regulated environment

• Shippers uncertain as to their market share in the Shippers uncertain as to their market share in the future future fear for ‘open positions’: fear for ‘open positions’:

– larger part of supply portfolios is short-termlarger part of supply portfolios is short-term

– hence: more shorter term transportation contractshence: more shorter term transportation contracts

• Fluxys uncertain about regulatory environment and Fluxys uncertain about regulatory environment and profitability profitability financing more complex financing more complex

• Belgian gas demand 2000-2014 to rise by 46% ➔ huge investments needed

• Shippers’ behaviour increasingly unpredictable + unpredictable regulatory environment ➔ lack of adequate investment signals➔ increasing risk of stranded investments

GIE Conference – 3 November 2005 - 12

BUT ALSO…..BUT ALSO…..

GIE Conference – 3 November 2005 - 13

New opportunitiesNew opportunities

• Zeebrugge Hub: created proactively in 1999Zeebrugge Hub: created proactively in 1999

– Hub services Hub services HuberatorHuberator

– Cleared spotmarket Cleared spotmarket APX Gas Zeebrugge B.V. APX Gas Zeebrugge B.V.

• Shipper & ICT services Shipper & ICT services GMSLGMSL

Becomes a catalyst for further infrastructure investmentsBecomes a catalyst for further infrastructure investments

– LNG terminal expansion by LNG terminal expansion by Fluxys LNGFluxys LNG

– BBL pipeline BBL pipeline BBL BBL CompanyCompany B.V. B.V.

– Futher investments in transit capacity (Futher investments in transit capacity (open open seasonseason

launched)launched)