Reaction to the study on the role of gas storage July 15, 2015 Brussels

Agenda A report which does not reflect the reality faced by SSOs 1.1. SSOs are facing unfavorable market conditions 1.2. This situation is putting European security of supply at risk How to ensure the survival of the storage industry? 2.1. Recognizing the insurance value of storage 2.2. Recognizing the system value of storage 2.3. Recognizing the existence of a flexibility market

1. A report which does not reflect the reality (1/2) 1.1. SSOs are facing unfavorable market conditions The study considers that there is no clear relation between the level of the seasonal spread and the storage filling rates … … that SSOs today do not have difficulties in maintaining their historical storage levels… …and that alternative sources of flexibility did not displace storage as a provider of seasonal flexibility. This mocks reality! Since seasonal spread decline in 2009, shippers tend to favor spot purchases and this negatively impacts the storage fillings levels, SSOs revenues and as well as the storage capacity made available in Europe.

1. A report which does not reflect the reality (2/2) 1.2. This situation is putting European SoS at risk SSOs must compete with price signals that are below the costs they incur to operate and maintain their facilities. This is not sustainable in the long run! SSOs react with mothballing/closing of storage facilities, projects shifts, termination and depreciations… The closing of an UGS is costly and almost irreversible (especially for porous storages) and is putting SoS at risk… …whereas gas storage will be much needed in the future in view of the decrease of indigenous flexible production, the development of renewables, the pick-up of gas demand for power after ETS reform and the disappearance of the effects of recession. Mothball - closure of gas storages : Pore storage Dötlingen (ExxonMobil / BEB) is in the process of decommissioning; Storengy mothballed two pore storages in 2012 (Soings and Trois Fontaines, FR); New builds put on hold postponed or cancelled: Caythorpe, Baird (UK/Centrica); Aldbrough extension (UK/SSE,Statoil); Deborah (UK,Eni); Jemgum (E.ON); Triepkendorf, Himmelpfort and Klaushagen projects (Gazprom, Germany); Staßfurt (RWE).Balance sheet write off (due to annual report): Gasag wrote off its Berlin aquifer storage in 2012 (-145 m€); Stadtwerke Bochum created provisions for its share of Trianel Gasspeicher Epe; SSE (UK) wrote off goodwill on Hornsea storage in 2012 (-37 m€); BP (UK) wrote off certain gas storage assets in Europe in 2012 (-110 m€); DONG Energy (DK) created a provision in 2012 for its long-term storage booking in Germany made in 2006-2007 (-315 m€); IVG wrote off its cavern storage assets; GDF (in total 3.200 m€) and RWE (in total 220 m€) wrote off on gas storage in 2013.

2. How to ensure the survival of the storage industry? (1/3) 2.1. By recognizing the insurance value of storage We agree with the study’s statement that the market does not give a proper valuation of the physical availability of the gas storages offer. However, we disagree on the way the study proposes to address the insurance value of storage. According to the GSE “toolbox” approach, each Member State should decide how to handle its strategy related to security of supply according the specifics of its country, its level of exposure to risks… Market-based measures should be promoted as well as storage obligations or strategic storage depending of each country specificities!

2. How to ensure the survival of the storage industry? (2/3) 2.1. By recognizing the system value of storage Restrictions imposed by high transmission tariffs can make accessing storage facilities less attractive and make them uncompetitive with other sources of flexibility – whereas storage reduces the costs that TSOs incure when operating their systems. The benefits that storage brings to the whole system should be taken into account when setting the transmission tariffs at storage connection points. This subject should be dealt with in the Network Code Tariff rather than in the review of Regulation 994/2010. they might anticipate that the worst situation will never materialize and rely on either their governments taking over this risk through intervention in an EU-declared emergency situation or other market player booking storage for their proper portfolio

2. How to ensure the survival of the storage industry? (3/3) 2.1. By recognizing the existence of a flexibility market Today, shippers can chose between a variety of competing flexibility tools especially spot purchasing. Hub-based products are more economically attractive than storage and do not face the same third party access. This makes competition very harsh for storage! Therefore it is crucial to adapt the regulatory framework to the new market conditions by: - ensuring a level playing field between all the flexibility sources. - facilitating commercial innovation.

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