The South East Europe Natural Gas Market FABIO TAMBONE & SERGIO ASCARI (Autorità per lenergia elettrica e il gas)

““The South East Europe Natural Gas Market”The South East Europe Natural Gas Market”

FABIO FABIO TAMBONETAMBONE & SERGIO ASCARI & SERGIO ASCARI

(Autorità per l’energia elettrica e il gas)(Autorità per l’energia elettrica e il gas)

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Objective & Scope of the ECSEE Report

The report analyses the current natural gas infrastructure and regulatory framework of the ECSEE Countries and taking into account the harmonization of the regional legislation with the Natural Gas Directive, 2003/55/EC

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Objective & Scope of the ECSEE ReportThe first part of Report is mainly focused on the current natural gas infrastructures;

Transmission, distribution, storage and LNG facilities

The demand pattern for each country

Supply portfolio

Existence of long term take-or-pay contracts

Demand forecasts and the possible future sources of supply

Existing cross border trading activities

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Objective & Scope of the ECSEE Report

The second part of Report is mainly focused on the regulatory framework;

Unbundling of activities

Tariffs methodology and Licenses

Gas release programs

Dispute settlement

Cross border trade

Monitoring of activities

Third party access

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SEE Natural Gas: Market size

0

5

10

15

20

25A

lban

iaB

os

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/He

rze

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Bu

lgar

ia

Cro

atia

FYR

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Mac

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ia

Ro

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Se

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Tu

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Consumption

Production

BCM

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SEE Natural Gas: Consumption

Total 2003 Gas Consumption (bcm)

B&H BU CRO FYR RO SER TU AU GR HU IT SLO0

10

20

30

40

50

60

70

80

90

Country

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SEE Natural Gas: Consumption per capita per capita

8

SEE Natural Gas : Market size increase

Turkey

Serbia

Romania Croatia Bulgaria

0

20

40

60

80

2005 2010

%

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SEE Natural Gas : Share of primary energy

10

SEE Natural Gas : Gas usage

11

SEE Natural Gas : Import ratio

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SEE Natural Gas : Main suppliers

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SEE Natural Gas : Diversification

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SEE Natural gas : Potential projects

Regional Infras

Turkey - Bulgaria - Romania - Hungary – Austria (Nabucco)

Turkey-Greece/Bulgaria-FYR of Macedonia- Kosovo -Serbia- via Hungary and/or Bosnia & Herzegovina, Croatia-Austria

Turkey-Greece-Italy

Turkey-Greece-FYR of Macedonia-Albania-Italy

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SEE Natural gas : Transmission

Natural gas transmission network is relatively underdeveloped in the Region

Only Romania has a well developed transmission network Bulgaria and Croatia have slightly developed transmission

networks Transmission network is very limited in Albania, Bosnia &

Herzegovina, FYR of Macedonia Transmission network is partly developed in Serbia and

Turkey The natural gas transmission infrastructures are owned

and operated by state companies On the other hand network in the EU-ECSEE Countries is

well developed, excluding Greece

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SEE Natural gas: Distribution

Distribution networks is relatively underdeveloped in the Region

The distribution lines per capita index is significantly high in Croatia and Serbia in Non-EU ECSEE Countries

The distribution companies are mostly privately owned

On the other hand infrastructure in Austria, Hungary and Italy is well developed.

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SEE Natural gas : Storage & LNG

Total Storage Working Gas Capacity (mcm)

B&H BU CRO FYR RO SER TU AU GR HU IT SLO0

2000

4000

6000

8000

10000

12000

14000

Country

Turkey, Italy and Greece have LNG terminals. Turkey has two LNG terminals

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Sizeable total market is 47,5 Bcm/year in Non-EU ECSEE Countries and 103,4 Bcm/year in EU ECSEE Countries

In the Non-EU ECSEE Countries, the weighted average share of gas in primary energy supply is 23.8%, which is very close to that of EU Members average (24%)

Gas markets in Austria, Hungary and Italy feature high levels of per capita consumption and low expected growth rates; hence they can be regarded as mature markets

Among Non-EU ECSEE Countries the only relatively mature gas market is Romania

On the other hand per capita gas consumption in Greece and Non-EU ECSEE countries except Romania is in general far smaller

SEE Natural Gas: Summary of infrastructure

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Greek, Turkish, Serbian, Bulgarian and Croatian gas markets are expected to develop rapidly

In the remaining countries of the region gas consumption has either just started recently or is very little developed

Turkey and Romania account for 83% of total consumption

Natural gas is mainly used in industry and partly in power generation in the Non-EU ECSEE Countries. In more mature EU ECSEE Countries consumption patterns are more mixed

There is a rational structure of network industries (One National TSO, some Regional or Provincial DSO)

SEE Natural Gas: Summary of infrastructure

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Inadequate infrastructure, notably distribution and

storage

Domestic resources limited except Romania

Need to diversify external supplies, including LNG

Non-EU ECSEE Countries as well as Greece have no

access to each other’s markets or facilities that may boost

security of supply, like domestic production fields, storage

plants and LNG terminals

SEE Natural Gas: Summary of infrastructure

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SEE Natural gas : Regulatory Framework

All the countries in the region have their respective independent Regulators

Most of the countries in the region have opened their markets, and identified at least some eligible threshold

However, competition has been introduced into EU ECSEE Countries (except Greece) and Romania, but in all other countries monopolistic structures still prevail

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SEE Natural gas : Regulatory Framework

TSOs and DSOs are in the process of legal and managerial unbundling

Accounting unbundling is foreseen for almost all activities

Access to domestic pipelines is regulated in most of the countries in the region

However, as far as the transit network is concerned, access is in principle regulated in some countries of the region and is negotiated in others

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SEE Natural gas : Regulatory FrameworkIn most Non-EU ECSEE Countries, postage stamp

methodology is being or is expected to be used for transmission

Tariffs are mostly determined and/or approved by Regulatory Authorities

However it is not yet clear whether such tariffs, as well as other features of third party access regimes in Non-EU ECSEE countries (with the exception of Romania) and in Greece, are suitable for the development of competition. In fact they are often not used due to the lack of competitors.

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SEE Natural gas : Regulatory Framework

The average declared market opening is 61% in Non-EU ECSEE countries. This may be compared with 94% of EU ECSEE Countries

All Non-EU ECSEE Countries started to open their markets except F.Y.R. of Macedonia and Bosnia and Herzegovina

In EU ECSEE Countries, all countries opened their market except Greece. Greece is temporarily exempt from some market opening requirements of Directive 2003/55/EC due to its lack of connection to other EU markets

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SEE Natural gas : Regulatory Framework

First come first served is mostly used for congestion

Wholesale supply monopoly in most countries

No pipe to pipe competition

Gas industry regulated in all countries

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SEE Natural gas : Market opening

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SEE Natural gas : Market opening

%82

%45

%40

%49

%80

%100

%67

%100

%90

0 20 40 60 80

Market Size (BCM)

Bosnia &

Bulgaria

Croatia

FYR of Mac.

Romania

Serbia &

Turkey

Austria

Greece

Hungary

Italy

Slovenia

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Most benefits can be achieved only through a single market, most national markets too small :

Negotiating for import supplies

Diversifying gas sources

Ensuring security of supply through use of storage, interconnection and LNG facilities of each country

Exploiting economies of scale in gas transportation

Matching excess supply with excess demand markets in the short and long run

Developing new long distance transmission infrastructure.

Conclusions and further developments

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Consistently with the experience of the EU market opening after Directives 98/30/EC and 2003/55/EC, further research and regulatory effort should in particular address the following issues, with a view to ensure their necessary harmonization and their compatibility for a common market:

Authorization and licensing regimes for existing and new transportation infrastructure

Technical standards and other obstacles to cross border exchanges, in comparison with the EASEE-gas process in the EU

Legal, fiscal and tariff barriers to cross border trade including destination clauses and other commercial restrictions

Conclusions and further developments

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Independence and responsibilities of national market regulators

Stability, predictability and accountability of the regulatory framework

Regulated access to transmission, distribution and (at least in the medium term) storage and LNG facilities

Impact of existing and new long term contracts on competition in the region

Infrastructure capacity information and allocation criteria

Infrastructure financial viability under competitive conditions

Implementation of cost-reflective (preferably entry-exit) pricing mechanisms of transmission

Conclusions and further developments

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Economically sound fair and non discriminatory public service obligation criteria

Legal and management unbundling of transmission and distribution operations

Criteria for release and availability of unused capacity Promotion of gas consumption through environmentally

consistent fiscal and regulatory policies Increased cooperation and trade among ECSEE

countries Promotion of measures to ensure security of supply on a

non-discriminatory basis

Conclusions and further developments

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1) An interconnected infrastructure is needed

2) Harmonized and stable regulation to be provided for a common ECSEE market

3) Cost reflective tariffs, transparent and non-discriminatory access to the system is required

4) Promote new infrastructure in line with Directive 2003/55/EC

SEE Natural gas : Challenges

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ISTANBUL NATURAL GAS FORUMISTANBUL NATURAL GAS FORUM