Development of the European Gas Markets and Implications ...€¦ · European Gas Markets and Implications for Singapore ... BTT TTF. 2002 : Natural Gas Consumption ... Singapore

Development of the European Gas Markets and Implications for Singapore

Drs. Martin J. van der Lugt

TTF Development

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Traded OTC (LEBA) + Exchanges (TWh/month)

TTF Net Volume (TWh/month)

• Price benchmark for Northwest Europe

• Pricing curve/Products:• Within-day, Day-ahead• Balance of Week, Balance of Month• Days, Weeks, Months, Quarters, Years• Seasons

• Market-based TSO Balancing Operations

• Financial trading, indexation of LT supply

contracts

• Churn 2014 > 30

• More than 120 participants

Development of Regulatory Framework

• The creation of a single market for natural gas and electricity is embedded in the foundation of the European Union

– Treaty of Rome 1957– Single European Treaty 1985– Treaty of Maastricht 1992

• Gas Directive (98/30/EC), common rules for EU member states’ energy market– Regulated or negotiated third party access to pipeline distribution networks– Unbundling of vertical integrated incumbent gas operators (no cross subsidies)– Recommendation for independent regulatory regulators– Member states were to implement Gas Directive in 2 years– At least 20% of market free to choose supplier (28% after 5 years, 33% after 10 years)

• European Council, Lisbon March 2000– Undertake further steps for internal European energy market for natural gas and

electricity– Unequal market opening between member states– Different forms of Third Party Access (regulated verses negotiated)

Development of Regulatory Framework

• European Council, Barcelona March 2002– Full market opening for industrial consumers in 2004, rest of market no later than 2007

• Gas Directive (2003/55/EC)– Mandated regulated Third Party Access for existing infrastructure– Unbundling and legal separation of TSO– Reinforcement of independent regulator mandates– Third Party Access for Transit High Pressure pipelines

• Gas Directive (2009/73/EC), 3rd Package– Supplier switches to be implemented within 3 weeks– Customers to receive relevant consumption data– National regulators to cooperated in ACER (Agency for the Cooperation of Energy

Regulators) – Unbundling of TSO and operators of Storage and LNG Facilities

• Regulation Energy Market Integrity and Transparency (EU 1227/2011), REMIT– Rules against market abuse, coordination in investigation into cross-border manipulation– Transparency in traded markets

REMITGas Directive(2009/73/EC)

Gas Directive(2003/55/EC)

Gas Directive(98/30/EC)

TTF Development

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Trading at Injection Point

Trading at Virtual Point

TTFBTT

2002 : Natural Gas Consumption

998 TWh

879 TWh

436 TWh

416 TWh

Source: Eurostat

2002 : Germany vs. The NetherlandsGermany Netherlands

• Long term supplies on oil indexation• Gas supplies with integrated

balancing services

• Long term supplies on oil indexation• Gas supplies with integrated

balancing services• Deregulated market all customers

from 1998 onwards • Deregulated market for industrial

customers in 1998 and all customers from July 2004 onwards

• Vertically integrated energy companies

• Market split in zones, each serviced by a different incumbent operator/supplier

• Vertically integrated energy company

• Early separation of transportation services from incumbent supply company

2002 : Germany vs. The NetherlandsGermany Netherlands

• Cheaper supplies from UK• Excess gas from ToP balances in LT

contracts• Independent new suppliers

(Mobil/Duke Energy) trading at BTT

• Standardized contracts (EFET) • Standardized contracts (EFET)

• Different TSO’s for each market zone with different transport tariffs and balancing requirements

• Only one TSO for the whole network• Early adopter of Entry/Exit

methodology

• No free storage capacity (all owned and operated by incumbents)

• Limited flexibility services for balancing

• Independent non-incumbent suppliers (Mobil/Duke Energy) competitively offering storage and balancing resources and services

Main DifferenceDuke Energy provided independent production flexibility and was able

to deliver a quantity of natural gas separately from the balancing services required by end-user customers

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Balancing Requirement

‘Flat’ Quantity of Natural Gas

Duke Energy

BTT

NBP

Production

Customers in The

Netherlands

Imports Norway

Border Title Transfer (BTT)

BTT ALLOCATION

AND MATCHING

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The Quantity of Natural Gas can now be sold, purchased and traded on the same

standardized terms (EFET) without affecting a customers balancing operating requirements at

its off-take point.

TTF Balancing Development• 2014 – Adjusted Balancing Regime

• TSO Balancing Operations: Market Transactions

• 2011 – New Balancing Regime• TSO Balancing Operations: Bid Ladder

• 2003 – TTF Set-Up• Entry-Exit capacity• Embedded Balancing Tolerance• TSO Balancing Operations: Penalty Regime

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LT supply agreement price indexation Oils - Gas

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Fuel Oil, Gasoil & Coal TTF, Zeebrugge, NBP

GasTerra’s sales strategy

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GasTerra gasoil 2010 forward price TTF hub 2010 forward price

Infrastructure Investments• Industries have improved their operations to benefit from

revenues from flexibility

• Rapid response salt cavern storage facilities

• 2005: RWE-Essent• 2007: Vattenfall-Nuon• 2011: Eneco• 2011: Gasunie

• Seasonal storage

• 2015: TAQA Bergermeer storage

• New pipeline connection to UK

• 2006 Balgzand Bacton Line

2013 : Natural Gas Consumption

100 TWh

330 TWh

404 TWh

Source: EIA

Singapore Today• Centrally located in SE ASIA

• surrounded by production resources in Malaysia and Indonesia

• shipping routes LNG from Australia and Middle East

• Connected to neighboring markets

• directly through pipelines• indirectly by sharing and competing for the same

production resources• LNG regasification

• Strong trading and financial infrastructure

Singapore Today

• Upstream pipeline natural gas is supplied in a bundle of commodity, flexibility and balancing services

• Upstream production and SLNG provide sufficient flexibility to manage end-user requirements and system necessities (pressure and quality management), but there is room for efficiency to be improved

• The Gas Network Code implements an allocation at injection points (excluding SLNG) in a manner that keeps commodity, flexibility and balancing services bundled (Shipper Attributed Quantities)

Minimal Next StepsThe development of a market for natural gas requires:

• No restrictions on trading commodity

• Implementation of Allocation Agreements at Injection Points

• Shippers responsible to manage their own portfolio balance• Natural Gas Code: Penalty regime for imbalances

• Availability of flexibility resources to be contracted by shippers for portfolio management

• Provided by operator (or its agent)• Sourced from flexibility provided by upstream resources

• Producers/Importers• SLNG

Results• Competition between downstream customers and sectors

• Ability to optimize long term supply with traded commodity• Development of a natural gas forward market• Standardized trading in commodity

• Price point for Singapore natural gas• Development of price point for LNG in SE Asia• Attracts diversification of sources of natural gas

• Efficient use of flexibility and balancing resources

• Development of natural gas spot market as alternative balancing mechanism

• Infrastructure improvements as a result of price recognition of flexibility resources verses market requirements

End