The effect of TAP pipeline for the Balkans, Turkey and Italian gas markets

Vincenzo CioffoItalian Regulatory Authority for Electricity Gas and Water

Eurasian Natural Gas Infrastructure June 22 - 23 Athens 1

The speaker is the only responsible for the expressed opinions which do not bind the Italian Regulatory Authority for Electricity Gas and Water

Eurasian Natural Gas Infrastructure June 22 - 23 Athens

Medium Term Gas Market

Global gas demand growth slows despite much lower gas pricesFollowing a stagnation in 2014, global gas demand is estimated to havereturned to growth in 2015. It is difficult for gas to compete in a world of verycheap coal, falling costs and continued policy support for renewables

Fierce competition develops in EuropeProduction growth from Russia and the Caspian region – the world’s largestexporting region – slows to half the level recorded between 2009 and 2015.Abundant supplies of liquefied natural gas (LNG) lead to strong competitionamong producers. For Gazprom to achieve its stated strategy of maintainingmarket share in Europe, it will need to adopt a more competitive pricingmechanism than in the past.

New investments grind to a haltGas supply risks remain substantial. As a result, concerns about gas supplysecurity could reappear on the horizon before the end of our forecast period.

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Natural gas consumption in

Italy by sector G(m3)

25,0 26,1 25,1 26,1 25,4 28,7 29,7 32,2 30,2 28,2 30,2 31,6 33,9 30,8 31,0 31,125,7 28,7

18,7 19,4 20,3 20,3 20,320,7 21,0

20,619,9

19,2 17,6 14,515,7

15,5 15,0 14,8

14,514,0

16,520,1 22,8 22,1 22,6

25,727,1

30,631,5 34,3 33,9

29,030,1

28,2 25,320,6

17,920,9

1,6

1,71,7 1,8 1,7

1,71,8

1,9 1,9 1,7 1,7

1,6

1,7

1,61,6

1,7

1,8

2,0

0

10

20

30

40

50

60

70

80

9019

98

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Residential and Tertiary Industry Thermoelectric Other Sector

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Gas demand in Italy

90% of the gross domestic consumption is satisfied by imports while

the remaining 10% by domestic production.

M(m3); estimates based on gas entry point

6.777 6.513 2.666 6.530 24.036 4.387 4.848

7.244 7.107

2.621

5.074

27.589

5.893 5.673

0

5.000

10.000

15.000

20.000

25.000

30.000

Algeria Lybia Norway The netherlands Russia Qatar Others

2014 2015

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Eurasian Natural Gas Infrastructure June 22 - 23 Athens

Estimated border prices of gas imported

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Eurasian Natural Gas Infrastructure June 22 - 23 Athens

Principles of gas transmission tariff

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Azerbaijan is an important gas supplier for Turkey.

As soon as the Transanatolian Pipeline (TANAP) iscompleted Turkey will start to buy an extra 6 bcm from thesecond phase of the Shah Deniz field.

An additional 10 bcm from the Shah Deniz field is allocatedto the European gas market.

Although it is difficult to conclude new long-term contractswith European utilities, the Southern Gas Corridor will goforward.

Azeri gas in Turkey

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The potential of the Southern Gas Corridor is not limited toAzeri gas, as it may also transport new supplies from theEastern Mediterranean, Turkmenistan and Iraq in thefuture.

The diversity of potential suppliers and the possibility toexpand volumes also have positive implications forTurkey’s supply security.

Last but not least, the end of sanctions on Iran have madetrade with this country easier especially regarding energy.

Turkey’s supply security

Eurasian Natural Gas Infrastructure June 22 - 23 Athens

Final Joint OpinionThe project

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Final Joint OpinionResults evaluation

Requests for transportation of Shah Deniz II gas have a rangebetween a minimum of around 32.1 and a maximum of 42.6bcm/year.

It is possible to say that the demand from sources other thanShah Deniz have a maximum of 14.3 bcm/year.

not only the sponsors of TAP, but also the market, considers TAPespecially as a vehicle for the transportation of the Shah Deniz IIgas to Italy, which is the main destination market of TAP.

there's a demand for forward and reverse flow to Albania andGreece as well.

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Final Joint OpinionContribution of TAP to the Southern-East Europe

link between the Italian gas market and the South-Eastern Europegas market. TAP will strongly contribute to market integration inSouth Eastern Europe.

reverse the traditional flow north-south and this allows export ofgas from Italy arriving also from the Caspian region to the hub ofnorthern Europe.

crucial contribution to price convergence in the South EasternEurope area.

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Final Joint OpinionTAP Tariffs

TAP AG proposes that all shippers pay a uniform TAP Tariff, irrespectiveof they use forward or reverse capacity products.

the fee structure for forward flow gas transportation through the TransAdriatic Pipeline follows an entry-exit charge system. The calculatedTarget Revenue for any given period is broken down to an entry fee andan exit fee component under a 50%-50% split.

The entry fee is allocated in proportion to all volumes entering thepipeline, unrelated to the distances for which such volumes will beshipped. The exit fee is allocated to volumes exiting the pipeline atvarious exit points, the respective allocations being done in proportion tovolumes and travelled distance.

As far as Reverse Capacity is concerned, especially for virtual reverseflow, as there are no additional costs, Authorities believe that marketprocedures should start at a very low reserve price, for example 5% ofthe TAP Tariff.

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TAP will be connected tothe Italian natural gas gridto provide firm capacity atthe Italian virtual tradingpoint (PSV), from which allItalian gas exit points canbe reached

TAP can reach Austria viaTAG pipeline

TAP can reach Germanyand France via Transitgas

TAP can connect Caspian gas to multiple European markets

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Connection to Bulgaria

TAP can provide Bulgaria with a new source of gas through existing and planned infrastructure.

TAP can provide Bulgaria with a new source of gas through existing and planned infrastructure.

Reverse flow on Kula/SidirokastroInterconnection point exporting Russian gas from Bulgaria into Greece.

IGB – is designed to connect Greece (Komotini) to Bulgaria (Stara Zagora). MoU with IGB signed in January 2014.

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entsog Gas Network

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Europe’s current gas system is largely resilient to a wide range of extreme

scenarios, with the exception of SEE region

Conclusions

Balkans: to connect “energy islands” and to provide price

convergence

Turkey: more security of supply and more Asian hub

Italy: more diversification and more European hub

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Eurasian Natural Gas Infrastructure June 22 - 23 Athens

AEEGSI Annual Report on the State of Services and on Regulatory Activities

2016

AEEGSI/RAE/ERE Joint Opinion of the Energy Regulators on TAP AG’s

Exemption Application July 2013

AIE Medium Term Gas Market Report 2016

ECRB Market Monitoring Report Electricity and Gas Markets in the Energy

Community April 2016

ENTSOG TYNDP 2017 Scenarios

References

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THANK YOU !

GRI SSE – pilot project XII

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