IFIEC Energy Forum 23 February 2006 Oil & Gas Working Party Chairman: Jim Robertson

EC Sector Enquiry Preliminary Report Gas Markets Barriers to a fully functioning internal energy market 1.Market concentration 2.Vertical foreclosure 3.Lack of market integration 4.Lack of transparency 5.Price formation All five areas are concerns which the WP Oil & Gas has consistently put forward as problem areas

(1) Market Concentration Inquiry Finding At wholesale level markets maintain the high level of concentration that they had pre-liberalisation IFIEC agrees The wholesale market is key to the whole market A wholesale market which suffers from lack of liquidity and a high concentration of players is prone to manipulation

(2) Vertical foreclosure (Nothing to do with re-possession of real estate! Though may-be it could be applied to making pipelines and infrastructure available to all market players!!) Inquiry finding Lack of liquidity and limited access to infrastructure prevent new entrants IFIEC agrees Long term contracts (legacy agreements) need to be unwound Needs to be full legal unbundling of infrastructure Regulators must only give exemptions for TPA to new projects in exceptional circumstances. It has become the norm to gain TPA. Rigorous UIOLI rules need to apply on a sensible timescale e.g. 6 months (example: UK experience of Isle of Grain LNG slots)

(3) Market Integration Inquiry finding Cross-border sales do not presently exert any significant competitive pressure IFIEC response Consider regulation to ‘encourage’ gas companies who operate in more than one member country to offer same terms and conditions in the different countries We want a single market

(4) Transparency Inquiry finding There is a lack of reliable and timely information on the markets – normally the lifeblood of competition IFIEC response From the start this has been a major obstacle. At every stage IFIEC has made clear the importance of access to information. Under the voluntary GGPSSO (April 2005) information release was agreed on storage. Despite this in Winter 2005/06 most information is not being made available. The major gas companies appear to regard information as power

(5) Price Formation Inquiry finding More effective and transparent price formation is needed in order to deliver the full advantages of market opening to consumers IFIEC agrees Long term the formal link to oil products must be broken The EU is surrounded by a sea of gas There are diverse supplies from Norway, Russia, North Africa, and LNG from Nigeria, Trinidad, Middle East We must not allow the security of supply debate to detract from the failure of the market to liberalise Industrial consumers are being hit hard Most risk has been moved from the gas companies to the end user

Summary The situation is now urgent Radical steps are needed to catch up on the years of slow progress to minimise damage which has already been done to industry The aim is a single market Transparency of information is key. The balance between commercial confidentiality and the clear need for transparency has to shift to transparency Large gas suppliers operating in several member countries must offer comparable terms and conditions to industrial consumers