GIE views on Gas Target Model - focus on storage - Jean-Marc Leroy GSE President / GIE Board Member CEER - 3rd Gas Target Model workshop London, 11 April 2011

GIE General Remarks on Gas Target Model Long-term aspects of the gas market and the need for a sound investment climate should be recognized. Detrimental impact on activities of storage and LNG terminals should be avoided. Market mergers are beneficial if tariff consequences are limited. Market coupling is less relevant for the gas market. Instruments provided by the Third Package should be used in the first place. A sound cost/benefit analysis is necessary. The attractiveness of the European marketplace and security of supply should not be reduced.

GSE Remarks on Gas Target Model (1/3) Scope of the Gas Target Model: The Madrid Forum mandate regarding Gas Target Model concerns access to transmission infrastructure only. Storage is a specific activity: Storage is a flexibility tool in competition with other flexibility instruments. Storage development entails very long lead-times which may extend up to 25-30 years.

Gas Storage: typical cash-flow pattern for a 0.5 bcm green-field storage project

GSE Remarks on Gas Target Model (2/3) Gas Target Model, if incorrectly established, may have adverse effects on competition: Impact on storage business will have a knock-on effect on storage investment thus undermining the development of a flexibility market. Gas storage can be influenced by national policies on security of supply, such as strategic storage, which were assumed to have local impact In some countries only. Wrong enlargement of market zones could lead to a spillover effect of uncompetitive local solutions on other areas.

GSE Remarks on Gas Target Model (3/3) GTM should not create artificial need for investment: Will have a negative impact on the final gas bill. Will increase the overall transport cost to and from storage which will impact on the price of storage as perceived by the customer. Any transmission tariff consequences of the GTM should not negatively affect the use and value of storage.

Conclusions GTM process should respect the mandate and not extend beyond transmission issues. Incorrect establishment of new market design can have adverse effects on competition. Artificially driven network investment should be avoided. Transmission tariff consequences should not impact the use and value of storage. For the GTM process to be credible, it needs to be transparent and inclusive of all stakeholders’ views. The announced revision of the GTM in 2012 brings into question the process and creates further uncertainty for stakeholders.