The EU internal energy market Istanbul, May 25th 2015 The EU internal energy market 6th WFER - Istanbul Vittorio Musazzi General Manager

European Gas Transmission Network 2014

Dimensions of EU gas and electricity Source: TYNDP ENTSO-E/ENTSOG Gas and power markets have different characteristics: Gas: 90% of gas flows across international borders and connected markets Power: mainly national markets with market coupling/price convergence Transmission costs for gas is far lower than for electricity

242,000 km 23,1% Directly employed staff: 49,540 Length of high-pressure pipeline network: 242,000 km Energy covered in the EU: 23,1% Directly employed staff: 49,540

Role of ENTSOG As laid down mainly in Article 4 of the Regulation 715/2009, the purpose of ENTSOG is that: All transmission system operators shall cooperate at Community level through the ENTSO for gas in order to promote the completion and functioning of the internal market in natural gas and cross-border trade and to ensure the optimal management, coordinated operation and sound technical evolution of the natural gas transmission network.

Board: President and 12 Members ENTSOG structure Capacity Balancing Tariffs Investment Interoperability Transparency Board: President and 12 Members General Assembly 44 TSOs, 3 Associated Partner and 4 Observers Regional Co-operation General Manager System Development Market Operation Liaison Group Legal Financial Ad hoc DTFS Administrative Research Plan

ENTSOG activities Network Code development: 12 months Pan-European Network Codes to cover cross-border/market integration issues framework Stability Pan-European Ten-Year Network Development Plan (‘TYNDP’) Regular gas supply/demand outlooks on the European market Develop common operational tools (CNOTs): network security and reliability Providing information/data (Transparency Platform, maps) Network Code development: 12 months Preparatory work Project planning Prepare launch document Interactive draft code development Prepare final code ACER review Comitology Cooperation amongst Stakeholders, Institutions and TSOs made this possible!

Internal Energy Market (1) Rules and tools TYNDP and Platforms Network Codes Implementation Transparency Information Market Opening through the implementation of the common rules and transparency and information availability

On the way to EU law Network Code development: 12 months Preparatory work Project planning Prepare launch document Interactive draft code development Consultation Prepare final code ACER review Comitology CMP Guidelines Approved as amendment to the Reg. 715 on August 2012 ENTSOG third NC - published as Regulation (EU) No 703/2015 (30th April 2015) ENTSOG first NC - published as Regulation (EU) No 984/2013 (14th October 2013) CAM NC -Network Code on Capacity Allocation Mechanisms in Gas Transmission Systems INT NC - Network Code on Interoperability and Data Exchange Rules BAL NC - Network Code on Gas Balancing of Transmission Networks ENTSOG second NC - published as Regulation (EU) No 312/2014 (26th March 2014) ACER Reasoned Opinion 26th March 2015: on going discussion ex art. 6(8) Reg. 715/2009. Gas Committee meetings: Q4 2015 + Q1 2016 TAR NC - Network Code on Harmonised Transmission Tariff Structures for Gas CAM NC Amendment for Incremental capacity In line with the invitation from EC ENTSOG drafted the NC amendment and submitted to ACER. Same timescale as TAR NC for Gas Committee

Designing the EU Internal Market (3rd Package) Framework Guidelines Network Code Evaluation Comitology Entry into force The objective of the EC is to meet the 2014 target from the EU Council  Rules on priority topics are developed by 2014 Project Plan Launch Doc SJWS Draft Formal Consult. Revision Final 12 months maximum

TSOs‘ Commitment to ENTSOG Brussels based Small ENTSOG team working with extensive inputs from member companies ENTSOG Members’ commitment Working Group participants Stakeholders involvement Stakeholders Joint Working Session Up to 100 attendees per meeting Institutions cooperation Deep discussion and High level of cooperation ENTSOG team Members’ staff

ENTSOG working process EC ACER Member States Shippers End users/ Connected operators Stakeholder consultation is at the heart of the team’s work Huge progress made in engaging a range of market participants Market participants see ENTSOG as a fair partner Stakeholders have responded very positively to our processes and outputs … involvement of all market participants is the key of success of the work done! The real spirit and the results possible in line with the 3rd Energy Package!

Early Implementation of network codes

Projects in the CAM Roadmap Introduction Projects in the CAM Roadmap Review of national regulatory frameworks Issues and challenges being addressed in CAM implementation To note verbally during the presentation: Madrid Forum XXI (March 2012) called for early implementation of CAM NC through pilot projects and platforms Madrid Forum XXII (October 2012) endorsed the first draft CAM Roadmap jointly presented by ACER and ENTSOG and encouraged to proceed with implementation ACER and ENTSOG in close cooperation with NRAs and TSOs have now finalised the CAM Roadmap which aims to facilitate the early implementation of CAM NC The CAM Roadmap aims to facilitate the early implementation of CAM NC by: Promoting experience sharing and exchange of lessons learned between pilot projects Identifying good practices and critical issues of EU relevance Informing adequately all interested stakeholders Enabling ACER and ENTSOG to monitor the whole process, as requested by the MF, ensuring the coherence of solutions adopted by different projects CAM Roadmap document published on ENTSOG and ACER websites Friday 1st March Voluntary implementation via pilot projects is already well underway, ahead of mandatory implementation deadline

Projects in the CAM Roadmap PILOT PROJECTS Rapid progress towards early implementation of CAM NC in large number of MSs spanning most EU regions Driven by voluntary initiatives established by TSOs, with support from NRAs. To be noted here during the presentation the very positive nature of recednt developments for european gas markets

Capacity Platforms Luxembourg UK Denmark Netherlands TBC Daily Daily Pilot project via Prisma (Q2 2015) PRISMA UK TBC Netherlands Daily Monthly Quarterly Yearly Denmark Daily Monthly Quarterly Yearly GSA RBP Ireland TBC Poland TBC Belgium Daily Monthly Quarterly Yearly Czech Republic Pilot project via Prisma (Monthly, Daily) Pilot project via GSA Slovakia Pilot project via Prisma (Q2 2015) France Daily Monthly Quarterly Yearly Hungary & Romania Daily Monthly Quarterly Yearly Spain Monthly Quarterly Yearly Interruptible capacities Germany Daily Monthly Quarterly Yearly Portugal Monthly Quarterly Yearly Interruptible capacities Austria Daily Monthly Quarterly Yearly Slovenia Daily Monthly Quarterly Yearly Italy Daily Monthly Quarterly Yearly Interruptible capacities

Transparency Platform:

Legal Obligation 1. Transparency guidelines (Reg. (EC) 715/2009, Chapter 3 of Annex 1) Definition of the technical information necessary for network users to gain effective access to the system Definition of all relevant points for transparency requirements Definition of the information to be published at all relevant points and the time schedule according to which that information shall be published 2. Congestion Management Procedure Amendment of Transparency Guidelines by CMP Commission Decision of 24th august 2012 (2012/490/EU) TSOs obliged to publish data on a Union-wide central platform, established by ENTSOG New data to be published (CMP data)

Transparency Platform 2.0

Next step: Implementation of network codes

Implementation of the network codes Introduction Implementation of the network codes 01/10/2015 Balancing 01/11/2015 CAM 01/05/2016 Interoperability To note verbally during the presentation: Madrid Forum XXI (March 2012) called for early implementation of CAM NC through pilot projects and platforms Madrid Forum XXII (October 2012) endorsed the first draft CAM Roadmap jointly presented by ACER and ENTSOG and encouraged to proceed with implementation ACER and ENTSOG in close cooperation with NRAs and TSOs have now finalised the CAM Roadmap which aims to facilitate the early implementation of CAM NC The CAM Roadmap aims to facilitate the early implementation of CAM NC by: Promoting experience sharing and exchange of lessons learned between pilot projects Identifying good practices and critical issues of EU relevance Informing adequately all interested stakeholders Enabling ACER and ENTSOG to monitor the whole process, as requested by the MF, ensuring the coherence of solutions adopted by different projects CAM Roadmap document published on ENTSOG and ACER websites Friday 1st March Voluntary implementation via pilot projects is already well underway, ahead of mandatory implementation deadline

Internal Energy Market (2) Integration and Diversification Interconnections New routes supplies, routes Investments Information and vision Regulatory framework Stability and vision for investments are needed

Ten Year Network Development Plan 2015 2035

Executive Summary - Infrastructures From projects to commissioned infrastructure 259 projects (South Stream withdrawn) A bit less projects than previous edition Construction works are on time but FID are often delayed Main barriers to investments Based on project promoter feedback Regulatory frameworks are often perceived as focusing too much on tariff reduction ignoring the economic benefits of well-integrated markets Market is not able to provide necessary investment signals due to economic situation, short term orientation given by regulation and lack of visibility on the role of gas in the EU energy mix

Executive Summary - Demand Stable demand driven by global context Gas demand for power generation is the major driver Use of two demand scenario differentiated by commodity price (gas, coal, CO2), power generation capacity mix, economic environment... Scenarios in the upper half of other outloks (IEA 450 and DG ENER trends to 2050 and Eurogas slow progression are lower) 0.4% increase per annum but situation is heterogenous from one region to the other

Executive Summary - Supply Europe needs to enlarge its supply portfolio In line with current situation of midstreamer having difficulty to manage ToP Situation will become tighter with the continuous decrease of indigenous production Under current perspective Russian gas and LNG will be the sources compensating this decrease with negative consequence on Europe control on import prices Potential exist to further diversify European supply and limit the import bill Russia LNG

Executive Summary – Assessment - 1 Market integration, a constant challenge Confirmation of results of previous edition Extension of the time horizon shows how regional issues may impact the whole Europe without the proper investment decisions or

The basic blocks: Supply Facing national production decline… … Europe will have to develop new imports and indigenous production Biomethane This can materialize through the implementation of many projects of different sizes Shale gas

Stable Regulatory Framework: Why? High capital intensive infrastructures Economic lifetime of gas infrastructures is 30 to 55 years What will be the situation in 2045-2070? Private investor interest The bulk of the investment has to continue to come from private investors This requires the attractiveness of the sector which has to be insured through: Stable and incentivising regulatory framework recognizing the social benefits of market integration Visibility on the long term role of gas Funding from European Institutions This funding can only represent only few percent of the investment need But as it is tax payer money, supported projects should be thoroughly selected

European Gas Transmission Network 2014

Vittorio Musazzi ENTSOG General Manager vittorio.musazzi@entsog.eu