ERGEG South Gas Regional Initiative José Angel Sanz Viejo Regulation Director GIE Annual Conference 23rd November 2007

Regional Initiatives Main objectives To make specific improvements in the development of a single energy market in Europe by firstly integrating national electricity and gas markets into regional markets.  This is achieved through the identification and removal of impediments to trade at a regional level.

The South Regional Initiative Countries involved: France Portugal Spain According to ERGEG, this Region “plays an important role for European gas supply”. “It is both a significant gas market in itself with a consumption of nearly 80 billion cubic meters/year (17% of the EU25)” “It contributes to the security of supply by diversification, acting as one of the main entries for natural gas coming from the north of Africa, and for the LNG coming from a variety of origins (87% of LNG supplied to EU25 enters through this region)”.

The South Regional Initiative The three markets are characterized by a small number of indigenous resources, so they have to be supplied by external sources. All of them have LNG terminals that represent a significant part of their national supplies, varying from ¼ of the national supplies in France to around 2/3 of the supplies in Spain. There are a significant number of gas import sources that enhance the security of supply by means of diversification. It can be considered that Portugal and Spain are well integrated, from a physical point of view, but that is not the case of France and Spain, where interconnection level is rather limited.

The South Regional Initiative. Identified priorities Priority I: Interconnection Capacity Priority II: Interoperability Priority III: Transparency Priority IV: Hubs The priorities order is relevant. It is necessary to have solutions in a previous priority before tackling the next one.

Interconnection capacity / demand Priority I: Interconnection Capacity 2007 Taisnières Dunkerke 59 13 Obergailbach Demand 48 Oltingue 3 Biriatou Larrau Demand (bcm) Interconnection capacity (bcm) Interconnection capacity / demand Iberian Peninsula 36 2,6 7% France 48 58,6 122% Demand 36 Units: bcm Nowadays the Iberian Peninsula has an serious lack of interconnection capacity with the rest of Europe

Progress so far: Since April 2006 to October 2007 (I) Two projects will increase slightly the interconnection capacity between France and the Iberian Peninsula. Guyenne 1 Larrau A and B 2010 FR  ES ES  FR Common Value 18,5 30 Units: GWh/d Δ 0,6 Δ 1 Guyenne 1: This investment will increase the capacity between TIGF and GRTgaz networks. It was decided by French TSOs in order to accommodate the flows of Fos LNG plant and most of this capacity (practically 90% of this capacity would be reserved for GdF and Total as main users of the LNG plant of Fos Cavou). Therefore, only 30 GWh/d will be available to the market from 2009. An OSP will be launched in December 2007. Larrau A and B: will increase the capacity between Spain and France at Larrau up to 100 GWh/d. The available capacity will be 100 GWh/d from Spain to France and 18,5 GWh/d from France to Spain. An OSP will be launched around March 2008. It should be noted that this increase of capacity corresponds to investments already decided before the S-GRI was in place. We welcome the fact that some interconnection capacity would be made available to the market. Even if it is very limited (just 30 and 18,5 GWh/d), it is a first step. But, we have one main concern that we would like to point out. The OSP of Guyenne 1 and Larrau A and B will not be launched simultaneously, which implies serious risks for the shippers. Units: bcm However the Open Subscription for Guyenne 1 and Larrau A and B should be launched simultaneously, to avoid serious risks for the shippers.

Interconnection capacity level in some EU countries Planned interconnection capacity Actual interconnection capacity 135% 30% 7 % If the interconnections projects defined in the S-GRI until 2015 were developed, the Iberian Peninsula would have an interconnection level similar to those EU countries with lowest interconnection capacity.

Progress so far: Since April 2006 to October 2007 (II) The current increase of capacity of 0,6 bcm from France to Spain and 1 bcm from Spain to France is not sufficient to satisfy market needs. Guyenne 1 and Larrau A and B were decided before the starting of the regional initiatives projects and not as result of this initiative . Guyenne 1, according to a CRE 2005 deliberation, is for the evacuation of gas from the Fos Cavaou LNG terminal, and a large part of the capacity created will mainly benefit Gaz de France and Total The necessary infrastructures to increase the interconnection have been identified; but, no new investment decision has been made. A decision on the necessary investments to increase the interconnection capacity should be made as soon as possible.

Conclusions Problems have been identified The increase of interconnection capacity between due to investments already decided will be just +0,6 bcm (FR to ES) and 1 bcm (ES to FR) in 2010 No new investment decision has been made. A decision on the necessary investments to increase the interconnection capacity should be made as soon as possible.

Muchas gracias