The South East Europe Natural Gas Market FABIO TAMBONE & SERGIO ASCARI (Autorità per lenergia elettrica e il gas)

2 Objective & Scope of the ECSEE Report The report analyses the current natural gas infrastructure and regulatory framework of the ECSEE Countries and taking into account the harmonization of the regional legislation with the Natural Gas Directive, 2003/55/EC

3 Objective & Scope of the ECSEE Report The first part of Report is mainly focused on the current natural gas infrastructures; Transmission, distribution, storage and LNG facilities The demand pattern for each country Supply portfolio Existence of long term take-or-pay contracts Demand forecasts and the possible future sources of supply Existing cross border trading activities

4 Objective & Scope of the ECSEE Report The second part of Report is mainly focused on the regulatory framework; Unbundling of activities Tariffs methodology and Licenses Gas release programs Dispute settlement Cross border trade Monitoring of activities Third party access

5 SEE Natural Gas: Market size BCM

6 SEE Natural Gas: Consumption

7 per capita SEE Natural Gas: Consumption per capita

8 SEE Natural Gas : Market size increase %

9 SEE Natural Gas : Share of primary energy

10 SEE Natural Gas : Gas usage

11 SEE Natural Gas : Import ratio

12 SEE Natural Gas : Main suppliers

13 SEE Natural Gas : Diversification

14 SEE Natural gas : Potential projects Regional Infras Turkey - Bulgaria - Romania - Hungary – Austria (Nabucco) Turkey-Greece/Bulgaria-FYR of Macedonia- Kosovo -Serbia- via Hungary and/or Bosnia & Herzegovina, Croatia -Austria Turkey-Greece-Italy Turkey-Greece-FYR of Macedonia-Albania-Italy

15 SEE Natural gas : Transmission Natural gas transmission network is relatively underdeveloped in the Region Only Romania has a well developed transmission network Bulgaria and Croatia have slightly developed transmission networks Transmission network is very limited in Albania, Bosnia & Herzegovina, FYR of Macedonia Transmission network is partly developed in Serbia and Turkey The natural gas transmission infrastructures are owned and operated by state companies On the other hand network in the EU-ECSEE Countries is well developed, excluding Greece

16 SEE Natural gas: Distribution Distribution networks is relatively underdeveloped in the Region The distribution lines per capita index is significantly high in Croatia and Serbia in Non-EU ECSEE Countries The distribution companies are mostly privately owned On the other hand infrastructure in Austria, Hungary and Italy is well developed.

17 SEE Natural gas : Storage & LNG Turkey, Italy and Greece have LNG terminals. Turkey has two LNG terminals

18 Sizeable total market is 47,5 Bcm/year in Non-EU ECSEE Countries and 103,4 Bcm/year in EU ECSEE Countries In the Non-EU ECSEE Countries, the weighted average share of gas in primary energy supply is 23.8%, which is very close to that of EU Members average (24%) Gas markets in Austria, Hungary and Italy feature high levels of per capita consumption and low expected growth rates; hence they can be regarded as mature markets Among Non-EU ECSEE Countries the only relatively mature gas market is Romania On the other hand per capita gas consumption in Greece and Non-EU ECSEE countries except Romania is in general far smaller SEE Natural Gas: Summary of infrastructure

19 Greek, Turkish, Serbian, Bulgarian and Croatian gas markets are expected to develop rapidly In the remaining countries of the region gas consumption has either just started recently or is very little developed Turkey and Romania account for 83% of total consumption Natural gas is mainly used in industry and partly in power generation in the Non-EU ECSEE Countries. In more mature EU ECSEE Countries consumption patterns are more mixed There is a rational structure of network industries (One National TSO, some Regional or Provincial DSO) SEE Natural Gas: Summary of infrastructure

20 Inadequate infrastructure, notably distribution and storage Domestic resources limited except Romania Need to diversify external supplies, including LNG Non-EU ECSEE Countries as well as Greece have no access to each others markets or facilities that may boost security of supply, like domestic production fields, storage plants and LNG terminals SEE Natural Gas: Summary of infrastructure

21 SEE Natural gas : Regulatory Framework All the countries in the region have their respective independent Regulators Most of the countries in the region have opened their markets, and identified at least some eligible threshold However, competition has been introduced into EU ECSEE Countries (except Greece) and Romania, but in all other countries monopolistic structures still prevail

22 SEE Natural gas : Regulatory Framework TSOs and DSOs are in the process of legal and managerial unbundling Accounting unbundling is foreseen for almost all activities Access to domestic pipelines is regulated in most of the countries in the region However, as far as the transit network is concerned, access is in principle regulated in some countries of the region and is negotiated in others

23 SEE Natural gas : Regulatory Framework In most Non-EU ECSEE Countries, postage stamp methodology is being or is expected to be used for transmission Tariffs are mostly determined and/or approved by Regulatory Authorities However it is not yet clear whether such tariffs, as well as other features of third party access regimes in Non-EU ECSEE countries (with the exception of Romania) and in Greece, are suitable for the development of competition. In fact they are often not used due to the lack of competitors.

24 SEE Natural gas : Regulatory Framework The average declared market opening is 61% in Non-EU ECSEE countries. This may be compared with 94% of EU ECSEE Countries All Non-EU ECSEE Countries started to open their markets except F.Y.R. of Macedonia and Bosnia and Herzegovina In EU ECSEE Countries, all countries opened their market except Greece. Greece is temporarily exempt from some market opening requirements of Directive 2003/55/EC due to its lack of connection to other EU markets

25 SEE Natural gas : Regulatory Framework First come first served is mostly used for congestion Wholesale supply monopoly in most countries No pipe to pipe competition Gas industry regulated in all countries

26 SEE Natural gas : Market opening

27 SEE Natural gas : Market opening

28 Most benefits can be achieved only through a single market, most national markets too small : Negotiating for import supplies Diversifying gas sources Ensuring security of supply through use of storage, interconnection and LNG facilities of each country Exploiting economies of scale in gas transportation Matching excess supply with excess demand markets in the short and long run Developing new long distance transmission infrastructure. Conclusions and further developments

29 Consistently with the experience of the EU market opening after Directives 98/30/EC and 2003/55/EC, further research and regulatory effort should in particular address the following issues, with a view to ensure their necessary harmonization and their compatibility for a common market: Authorization and licensing regimes for existing and new transportation infrastructure Technical standards and other obstacles to cross border exchanges, in comparison with the EASEE-gas process in the EU Legal, fiscal and tariff barriers to cross border trade including destination clauses and other commercial restrictions Conclusions and further developments

30 Independence and responsibilities of national market regulators Stability, predictability and accountability of the regulatory framework Regulated access to transmission, distribution and (at least in the medium term) storage and LNG facilities Impact of existing and new long term contracts on competition in the region Infrastructure capacity information and allocation criteria Infrastructure financial viability under competitive conditions Implementation of cost-reflective (preferably entry-exit) pricing mechanisms of transmission Conclusions and further developments

31 Economically sound fair and non discriminatory public service obligation criteria Legal and management unbundling of transmission and distribution operations Criteria for release and availability of unused capacity Promotion of gas consumption through environmentally consistent fiscal and regulatory policies Increased cooperation and trade among ECSEE countries Promotion of measures to ensure security of supply on a non-discriminatory basis Conclusions and further developments

32 1) 1) An interconnected infrastructure is needed 2) 2) Harmonized and stable regulation to be provided for a common ECSEE market 3) 3) Cost reflective tariffs, transparent and non- discriminatory access to the system is required 4) 4) Promote new infrastructure in line with Directive 2003/55/EC SEE Natural gas : Challenges

33 ISTANBUL NATURAL GAS FORUM