Walter Boltz

Chairman, CEER Gas Working Group

Enabling MarketsInitial assessment of merging market areas

& trading regionsGas Target Model

2GTM Workshop in London, 11 April 2011

Internal EU gas market

• What do we want to achieve?• Internal EU gas market

• How we want to achieve this?• First we need to enable functioning wholesale

markets (“markets”), where they do not exist yet.• As second step we need to connect these markets

better to move forward to an integrated market.

Basic conditions need to be established in all countries

No one size fits all solution possible

3GTM Workshop in London, 11 April 2011

Overview of the MECO-S model for EU gas market integration

Improve effectiveness by realising economic pipeline investments

MECO-S Model

Pillar 1:Enable functioning wholesale markets

Pillar 2:Tightly

connect markets

Pillar 3:Enable secure

supply patterns

Pillar 1: Structuring network access to the European gas grid in a way that enables functioning wholesale markets so that every European final customer is easily accessible from such a market.

Pillar 2: Fostering short and mid-term price alignment between the functioning wholesale markets by tightly connecting the markets through facilitating cross-market supply and trading and potentially implementing market coupling as far as the (at any time) given infrastructure allows.

Pillar 3: Enabling the establishment of secure supply patterns to the functioning wholesale markets.

Foundation: Improving the effectiveness of pillars 1 to 3 by making sure that economic investments in pipelines are realised.

4GTM Workshop in London, 11 April 2011

Where do we have functioning wholesale markets yet?

• Depending on the definition applied between 1 and 5 functioning gas markets exist in Europe today!

• Shall we strive to create 25 functioning gas markets?

• Will this foster competition in the retail markets?

• Would the German gas market have developed the same if we had not reduced the number of zones (~20) by merging them?

• Would the French gas market have developed the same if we had not reduced the number of zones (5) by merging them?

Can markets be enabled without liquidity only via better connection?

5GTM Workshop in London, 11 April 2011

How to enable functioning wholesale markets?

• Different pictures all over Europe call for different approaches which are not mutually exclusive• If a country is capable of establishing a functioning

market itself the establishment of one (or two, based on C/B analysis) zone within this country is important (e.g. GB, Germany, France, Spain);

• If a country is not capable of establishing a functioning market itself (e.g. due to lack of liquidity or size)

• Cross-border market areas (full merger) is one solution; or • Accession to a larger, already functioning market; or• Trading Regions – a single cross-border zone for wholesale

markets with congestion-free interconnection to national end-user zones.

6GTM Workshop in London, 11 April 2011

The Market Area Model

Features:

•One virtual point for wholesale trading

•Fully integrated wholesale market

•One balancing zone from import points to final customers

•Full integration of DSO networks

•Single set of balancing rules

•Single balancing entity

Symbols

Virtual point of the market area serving as the sole marketplace of the market area

Entry or exit contract

Exit contract

Market Area A

Country A

Country A Country B

Market Area AB

Cross-border market

area

National market

area

VP

Final customers (A) Final customers (B)

VP

Final customers (A)

VP

7GTM Workshop in London, 11 April 2011

The Trading Region Model

Country A Country B

Trading Region AB

End userzone A

End userzone B

Final customers (A) Final customers (B)

VP

Legend and Symbols

End user zone = National balancing zone for national final customers, no matter the system (distribution or transmission) they are connected to

Trading Region AB = Cross-border entry/exit system including all nominated points on the transmission systems of countries A and B

Entry or exit contract

Exit contract

Virtual point of the trading region serving as the sole marketplace of the trading region and all attached end user zones. Shifting of gas between trading region and end user zone is done by nominating a virtual exit on the VP.

VP

Features:• One virtual point for wholesale

trading• Fully integrated wholesale market• Trading region is basically kept free

of imbalances• Final customers are balanced in

national end user zones that may reflect national specifics

• End-user balancing may be done by national balancing entity

• Congestion-free interconnection between trading region and end user zones through the common virtual point ( virtual exit to end user zone)

8GTM Workshop in London, 11 April 2011

What needs to be done in all approaches?

• Prerequisite for merging market areas and creating trading regions:• Absence or at least limited physical congestion

• As soon as we are talking about cross-border integration the following issues have to be analysed• Entry / Exit Tariffication• Redistribution of revenues and costs• Alignment of regulatory framework• Investments• TSO as well as NRA cooperation

9GTM Workshop in London, 11 April 2011

MECO-S Model: Architecture at Large

Legend and Symbols

Hub to Hub capacity product and potentially market coupling

Virtual point.VP

Country E Country F

Trading Region EF

End user zone E End user zone F

Country C Country D

Market Area CD

Market Area A

Country A

Market Area B

Country B

VP

VP

VP

VP

10GTM Workshop in London, 11 April 2011

Common position of European gas industry associations on multi-system

operation of TSOs

11GTM Workshop in London, 11 April 2011

The second step: connecting markets

• Connecting markets means price alignment between functioning markets and thereby driving market efficiency and public welfare on a European scale

• Connecting markets can happen at different timescales, e.g. short-term implicit auctions.

12GTM Workshop in London, 11 April 2011

Thank you for your attention!

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