The role of natural gas storage The role of natural gas storage in the changing gas market landscapein the changing gas market landscape

Jean-Marc LeroyGSE President, CEO of Storengy

24th World Gas ConferenceBuenos Aires, 5th-9th October 2009

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Our sites and current developments Our sites and current developments

www.storengy.com

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Gas Storage Europe Gas Storage Europe

GSE represents the interests of :33 Storage System Operators,

with 110 storage sites in 16 countries in Europe,

representing approximately 86% of Europe’s technical storage capacity.

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Valuable tools on our website Valuable tools on our website ––www.www.giegie..eueu.com.com

Aggregated European Gas Storage Inventory

European Storage Investment Database and GSE Storage map

GSE Position papers on strategic storage, on third energy Package, on capacity allocation mechanisms & congestion management methods, key messages on the flexibility market

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Agenda Agenda

1.1. European gas storage market European gas storage market –– OverviewOverview

2.2. Gas Storage development and opportunitiesGas Storage development and opportunities

3.3. European legislative frameworkEuropean legislative framework

4.4. European gas storage market: main issuesEuropean gas storage market: main issues

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1.1. European gas storage market European gas storage market --OverviewOverview

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European GasEuropean Gas SupplySupplyTransmission systemTransmission system

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2011,9

14

1,6

2,3

2,3 2,6

3,7

54

2,7

0,8

0,6

2,3

0,6 0,6

Spain

France

Belgium

Great Britain

Netherlands

Germany

Poland

Latvia

Italy

Denmark

Czech R.Slovakia

AustriaHungary

Romania

Bulgaria

Croatia

4

0,2

Portugal

The overall working gas volume in EU-27 is around 82 bcm

Source: GSE 2008, CEDIGAZ 2007

Europe storage facilities : working gas volume in bcm

Storage volumes in EUStorage volumes in EU--2727––current situationcurrent situation

9Source: SG Equity Research / Eurogas / GSE 2008

Austria

Belgium, Portugal,Switzerland

Bulgaria

Hungary

Ireland

Italy

Netherlands

Poland

Romania

Slovakia

SpainUnited-Kingdom

Danemark

Czech Republic

Estonia, Finland,Lithuania, Lux.

0%

10%

20%

30%

40%

50%

0% 20% 40% 60% 80% 100%

Imports / Demand (%)

Stor

age

/ Dem

and

(%)

FranceGermany

EU-27Storage/Imports = 25%

EU-27 2020eEU-27 2030e

… and to assess the … and to assess the need for new storageneed for new storage

EU storage volumes need to be expanded by 50 bcm until 2025!

Another way to look at Another way to look at storage in Europe…storage in Europe…

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Security of supply issues (1/2)Security of supply issues (1/2)

European commercial storage facilities have played and play a key role in ensuring security of supply.

The real issue is a lack of diversification in supply sources and supply routes for some countries.

Security of supply

Diversification inthe energy mix

Diversification in the energy sources

Diversification insupply routes

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Security of supply issues (2/2)Security of supply issues (2/2)

The good functioning of the commercial storage facilities has been proven during several crisis.

The development of commercial storage in a more interconnected market must be fostered in order to reinforce security of supply in Europe.

Strategic stocks should not be deemed as a solution for the security of supply problem.

There should not be a confusion between strategic storage facilities and stock obligations in commercial storage facilities (Strategic stock management) in order to ensure security of supply for the customers.

More transparency in stocks information from system operators is paramount.

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2. Gas Storage development and 2. Gas Storage development and opportunitiesopportunities

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Gas Supply Gas Supply for Europefor Europe

Source : Cedigaz 2005

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Europe : Europe : Supply Capacities Supply Capacities in in 2006 & 20152006 & 2015

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New uncertainties facing the New uncertainties facing the European gas marketEuropean gas market

COMMERCIAL

DEMANDSUPPLY

• LNG is flexible• Transit and by-pass• The Fourth Corridor• Unconventional gas in

Europe• What price for investment

economics?• Where will costs settle?• Availability of debt

• Impact of recession• Role of 20/20 targets

… leading to … leading to opportunities in gas opportunities in gas storage developmentstorage development

Source: Cambridge Energy Research Associates, 2009

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European gas market Gas Demand Growth European gas market Gas Demand Growth —— Dependent on the Success ofDependent on the Success ofRenewablesRenewables and Efficiency Policiesand Efficiency Policies

Xxx

0

200

400

600

800

2000 2005 2010 2015 2020 2025 2030

Bcm

Power Range:160 Bcm

Demand Range:280 Bcm

Majority of uncertaintyfrom power sector

Power Generation

Total Demand

Low power demand growthHigh renewables, Post 2020: nuclear, CC&S

A stagnation can be observed in the last 3-4 years

Note: Europe = EU27, Switzerland, Norway, Balkan countries and TurkeySource: Cambridge Energy Research Associates, 2009

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Why are gas storage needs increasing in Europe?Why are gas storage needs increasing in Europe?

Longer transportation routes

Decreasing EU gas production

Increase of gas imports

Increase of interruptible renewable power generation installed capacity

Increase of gas-fired power generation installed capacity

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Investment : Commercial Storage Investment : Commercial Storage Operators are responding to Operators are responding to market needsmarket needs

• Database of EU storage investments updated regularly (launched in July 2007) : – Projects divided into 3 categories: planned, committed and under

construction

• Main results:– From an initial 30 bcm WG capacity increase to 2015 (July 2007) to

around 63 bcm (February 2009)

– Grand total of around 110 projects : new players are increasing their role : 25% of projects / 30% of planned new capacity (~19 bcm)

http://www.gie.eu.com/maps_data/database/index.html

19

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

AUSTRIA

BELGIU

MBULG

ARIA

CZECH REPUBLIC

DENMARKFRANCE

GERMANYHUNGARY

ITALY

LATVIA

LITHUANIA

NETHERLANDS

POLAND

PORTUGALROMANIA

SERBIA

SPAIN UK

mcm

Jul-07

Jan-08

Jun-08

Feb-09

http://www.gie.eu.com/maps_data/database/index.html

The last update of the GSE Investment Database showed that over 63 bcm of

additional storage capacity can be expected in Europe by 2015

Investment : Commercial Storage Investment : Commercial Storage Operators are responding to Operators are responding to market needsmarket needs

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3. European legislative framework3. European legislative framework

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3. European legislative framework3. European legislative framework

• European legal framework:– Security of supply (2004) – Internal market liberalisation (2003)

• Ensures Third Party Access (TPA) to storage • Gives alternatives for Member states: Regulated / Negotiated

• European voluntary guidelines: Guidelines for Good Practices for Storage System Operators (GGPSSO)

– Compliance with GGPSSO shows a transparent and non-discriminatory access to storage

• 3rd Energy Package including a 3rd gas directive

2 directives for 2 objectives

3rd directive

GSE believes that - the choice of access regime should be market oriented- negotiated TPA should be the preferred choice wherever market conditions allow as this regime best facilitates investments andfurther development of the market

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4. European gas storage 4. European gas storage market : main issuesmarket : main issues

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European gas storage market : European gas storage market : main issuesmain issues

European gas storage development : we will have to develop as much capacity over the next 20 years as we have developed over the last 60 years.

Competition with other flexibility tools : indigenous gas production swing, imported pipeline gas contract flexibility, peak shaving, spot markets, imported LNG, new transmission lines, interruptible gas, …

Attracting funding : we have to invest up to 50 billion euros over the next 20 years to face this development in the context of the current economic crisis.

A stable European Regulatory framework that encourages new storage developments as well as the optimal use of existing storage facilities is essential.

Europe’s etymology : Europe’s etymology : “the far“the far--seeing one” seeing one”

Thank you for your attention!Thank you for your attention!

www.gie.eu.comwww.gie.eu.com