The integration of European electricity and gas markets APEx conference Sydney, 14&15 October 2008 Bert den Ouden, CEO APX Group b.denouden@apxgroup.com

Contents Overview of APX Group Activities Electricity market integration Natural Gas in Europe Gas Demand Gas Supply Gas trading European Gas hubs Storage and transport APX vision

APX Group now Belpex Power NL (Dutch spot market) + Market Coupling NL-Be-France + Belpex: services + 10% share + recent: NorNed cable Power UK (spot, prompt, OTC, fwd) Gas UK (NBP, OCM balancing) + recent: gas storage trading Gas ZEE (Zeebrugge hub) Gas NL (TTF transfer facility) +recent: gas transport capacity Gas UK NBP Gas NL TTF “Endex” futures Power NL Power UK Gas ZEE Belpex Announced: APX (spot) integrating with Endex (futures): Dutch/Belgian Power, TTF gas futures

ANGLO-DUTCH-BELGIAN STRUCTURE 71.82 % 25.5 % 2.68 % € Million 2006 2007 Energy cleared 5,324 3,933 Revenue 25.4 26.6 EBITA 9.8 10 %

Growth of APX volumes and members 250 APX Group volumes 1999 - 2008 600 NL gas ZEE & NL Gas Be Gas 21 UK Gas 0.68 200 UK Gas 500 UK Power 12 UK Power 3 19 NL Power NL Power 0.93 9 400 15 150 8 74 67 average GWh/day Members 300 408 58 360 100 54 54 52 339 46 200 287 60 254 264 50 41 36 36 50 39 34 27 100 136 27 27 29 94 80 24 48 50 12 19 20 31 36 36 38 40 41 13 57 39 53 33 37 44 21 23 4 13 1999 2000 2001 2002 2003 2004 2005 2006 2007 1999 2000 2001 2002 2003 2004 2005 2006 2007

European electricity market integration

European electricity market Achievements Free customers Transmission System (grid) operators Efficiency of utilities Role of regulators Shortfalls Volatile prices Low liquidity in each market Large price differences between markets Transport constraints Inefficient use of transportation Market concentration Fragmented market Solution: market coupling (implicit auctioning) Florence Forum 2004 ?

Market Coupling Operation Old situation: Separate Dutch and French markets - no Belgian market Spot markets and cross-border flows separate sequential Results sub-optimal and often inconsistent: Limited liquidity, large volatility Large price differences, yet incomplete capacity use (60% of time) Counter-price flows (40% of time) Initiatives to implement MC from 2001 Plans to found Belgian PX Florence Forum 2004 support for MC in Europe based on proposal Europex and ETSO Agreement in 2004 on TLC. Result: One integrated system, 1-step operation Spot and cross-border flows in one step Belgian power exchange Belpex 3 PX’s and 3 TSO’s co-operating Rotating MC operation Started 22 Nov 2006  TenneT APX Bel pex  Elia Power next  RTE

Market coupling needs a day-ahead auction at both sides of interconnector Transportation capacity: Allocated together with the day-ahead power Utilized to the maximum Cannot be hoarded 100% utilization Flows in right direction A market with: Lower risks Better access smaller parties, end users Better liquidity, lower volatility, robust index Price convergence Day-ahead auction A Day-ahead auction B Price Price exports imports Volume Volume

Price convergence after Market Coupling Daily average prices for TLC countries 20 40 60 80 100 120 Nov 2006 Dec 2006 Jan 2007 Feb 2007 Mar 2007 Apr Date Price (Euros/MWh) Powernext Belpex APX market coupling

Price convergence through market coupling Experienced Hourly price difference NL-France, €/MWh Simulated Hourly price difference France-Germany, €/MWh 9% 24% 19% 40% 38% 4% 19% 3% ∆P >10 € ∆P 1-10 € 51% 68% ∆P <1 € 52% Equal price “copper plate” 54% 8% 9% Historical Prices Simulated after Market Couling Before Market Coupling Winter 2006 After Market Coupling Winter 2007

European electricity market ? Regional market coupling Functioning: Nord Pool TLC (Fr-B-NL)  CWE (Fr-B-NL-G) Mibel (Iberia), GRE Other regions: EU scheme of regional development Projects: NorNed (No-NL cable) German-Danish coupling BritNed (NL-UK) cable Inter-regional possible “Dome” coupling: “Loose” (volume-based) coupling between regions “Tight” (price-based) coupling within regions

BritNed cable and market coupling perspective: UK and NL day-ahead prices average GB 72.20 average NL 54.28 Difference 17.92 GB and NL Day Ahead Price GB (LEBA) March - August 2008 NL (APX) 120 100 80 MWh 60 / £ 40 20 01/03/08 01/04/08 01/05/08 01/06/08 01/07/08 01/08/08 Date

European gas market

Changing Demand Main uses of gas in Europe today Power Generation Industrial fuel Commercial and domestic space heating Petrochemical feedstock And in the future … Increased demand versus energy saving More power generation including fuel switching, CHP Natural Gas vehicles? Gas conversion into fuels? Europe consumed 5993 TWh gas in 2006, approx 20% of total world consumption. Biggest consumers are benelux & UK. Key Drivers: Increased use of gas for power generation. Extension of distribution networks in countries such as portugal and Greece. Growth in NG vehicles. Fuel switching from coal and oil for power generation. EC forecasts that gas’s share of energy supply will increase from 14% in 2004 to 27% by 2030.

European Gas Consumption Total 2005 = 6028.2 TWh Total 2006 = 5992.8 TWh European Consumption: ~ stable year on year temperature-driven strong seasonal factor Slight decline year on year however gas is a growing source of primary energy in Europe with an average growth in consumption of around 2% over the last five years. This is expected to continue.

European Gas Production Total 2005 = 3274.3 TWh Total 2006 = 3172.1 TWh Overall change in European Production: ~ - 3% year on year

Changing supply Continuing depletion of UKCS New supplies from Norway Production Continuing depletion of UKCS New supplies from Norway Important role of Russia Role of Algeria LNG surge Rising importance of Imports to balance supply/demand mismatch Increased imports from Russia LNG And in the future … UK was largest producer until 2005 but is showing the fastest fall in production rate. It is now a quarter below where it was in 2000 (where it peaked) and this level of decline is expected to continue with levels falling below the level of Dutch production by around 2015. Norweigian production is rising and expected to grow to around 1300 TWh/yr by 2010. Despite increasing output from Norway Europe’s gas production will continue to decline. The European Community forecasts that production will fall to 2687 TWh by 2020 and 2432 TWh by 2030.

Algeria to Italy & Spain European Gas Hubs Norway < 125 bcm/yr Russia < 200 bcm/yr Nordstream DK/Sw BEB NBP TTF ZEE EGT LNG 150 – 200 bcm/yr CEGH PEG Nabuco pipeline PSV Algeria to Italy & Spain MS-ATR

European Gas Hub and Exchange Volumes (TWh) Size of gas hubs and exchanges European Gas Hub and Exchange Volumes (TWh) Market Location Type 2005 2006 2007 NBP ICE APX OCM UK NBP Virtual hub Futures exch. Spot / balancing 5,768 396 124 7,058 536 148 11,800 1,100 131 TTF Endex APX TTF NL TTF Spot exch. 122 - 0.2 201 12 320 21 0.6 ZEE APX ZEE BE Physical hub 463 0.02 500 447 0.3 MS-ATR Spain Virtual hub* 260 281 438 CEGH Austria 8 99 197 PSV Italy 29 78 112 BEB EON.GT EEX Germany Spot/Futures Exch 5 13 66 70 0.5 / 4.3 PEG’s Powernext France Virtual hub x 5 Bal. Exch 45 77 118 1.2 * = inc. LNG

Hubs volume compared (Sep 07 – Aug 08)

The “Gas Roundabout” Added Value Trading Quality conversion CONSUMPTION IMPORT Profile Added Value PRODUCTION EXPORT Generic model. Does not distinguish NL from other counties that hold the same ambition Profile Transport & Transit Storage & Flexibility LNG

International Gas Market integration Current products: Balancing, Spot, Storage, Transport capacity, Endex TTF futures. To come:  More storage / transport  More curve products  Spreads / Swaps  Spark spreads TTF BBL NBP LNG connector Inter LNG ZEE LNG

Gas and power markets

Price Convergence - power Spot prices APX NL, APX UK, NordPool, EEX Average daily spot prices €, July 2007 – December 2007 APX NL APX UK NordPool EEX * UK prices converted to euro based on daily exchange rate

Price convergence – gas Natural gas day-ahead prices €/MWh TTF NBP Zeebrugge

Products & Markets: today and developments e = Endex b=service to Belpex Country/Commod. Product Gas NL (TTF) UK (NBP) Gas Belgium Power NL Power UK Belgium Continuously traded intra-day  b Day- ahead auction study Planned 2008 Transport and/or storage capacity 2008 Futures e OTC Clearing Spread / swap contracts Spark spread contracts

B. den Ouden b.denouden@apxgroup.com Amsterdam World Trade Center Strawinskylaan 729 1077 XX Amsterdam The Netherlands T +31 20 305 4000 F +31 20 305 4001 London 6th Floor 21 Southampton Row London WC1B 5HA United Kingdom T +44 20 7841 5600 F +44 20 7841 5601 Nottingham Ergo Building, Mere Way Ruddington Fields Nottingham NG11 6JS United Kingdom T +44 115 921 7421 F +44 115 921 7420 Energy Exchange of the Year 2008