Capacity Allocation Mechanism Iberian overview 13 th SG meeting Madrid 7 th Feb 2011 DRAFT – Portugal / Spain

Index 1.Background 2.Current Situation 3.Pilot model

Background - Portugal  Two IPs IP43 - Valença do Minho / Tuy and IP42 - Campo Maior /Badajoz;  Until the end of 2002, Portugal natural gas supply was crossing the Spanish system from Algeria by pipeline. The LNG terminal started operation in 2004 and is now responsible for 55 % of the Portuguese supply.  Gas market liberalization in Portugal was opened to all traders and there is a growing demand at the existing IPs;  Beeing a new system (Portuguese Natural gas network started in 1997 based on 28 inch pipe) there are no internal congestions in the system;

Background - Spain  Two IPs with Portugal: IP43 - Valença do Minho / Tuy and IP42 - Campo Maior /Badajoz;  Two IPs with France: Larrau and Biriatou. In 2015, capacity between France and Spain will be 225 GWh/d from S  N and 165 GWh/d from N  S.  6 LNG terminals:  LNG storage cap: m 3 GNL  Regas capacity: GWh/d  IP with Morocco  IP with Algeria foreseen to enter into operation in 2011  In 2010 supplies to Spain were 414 TWh, 76% of LNG

Current Situation (I) One year contracts; Capacity reserve is free of charge; Capacity is not owned by the user (not paid before its use) but once allocated in not available to others; Capacity allocation occurs on sequencing time windows and scales ( year, month, week, day); Previously allocated capacity continues with the shipper only if confirmed for the new window; Only the non confirmed capacity in a certain window is available for allocation for additional requirements; Portuguese SystemSpanish System TSOs – Shipper nomination is guaranteed ( OBA) Shippers book capacity for a minimum period of 1 day. Spanish regulatory framework does not include any restrictions on the maximum duration of contracts, although in practice it is uncommon to see contracts for more than 20 years. Both firm and interruptible services. Breakdown of capacity products: Long-term contracts: equal to or more than 2 years Short-term contracts: less than 2 years TSOs must reserve for short-term contracts at least 25% of the sum of the total capacity of their LNG terminals, UGSs and entry into the transmission system. Each shipper is not allowed to hold more than 50% of the capacities reserved to this purpose. Rules to allocate capacity at IPs with France: Long-term capacity: more than 1 year Short-term capacity: equal to or less than 1 year 80/20 long-term/ short-term capacity split.

Current Situation (II) To guarantee access to capacity the sipper should be in the allocation game since the beginning; Existing supply ToP contracts have priority within each window for the available capacity; The Portuguese system has not experienced congestions so far. Portuguese SystemSpanish System TSOs – Shipper nomination is guaranteed ( OBA) The corresponding entry and exit capacity available at both sides of IPs with France has been offered and allocated through a single allocation procedure. Thus, Larrau and Biriatou were treated as one single commercial point for allocation purposes. Standard allocation mechanism: First Come First Served principle. In infrastructures where congestion might occur or at IPs, capacity can be allocated by other criteria (auctions or share out the capacity through transparent, objective and non-discriminatory criteria) In order to guarantee the use of the booked capacity, users must pay in favour of the TSOs, a bail for a quantity equal to 12 times the fixed term of the corresponding TPA tariff applied over 85% of the capacity booked by the user. This bail will be returned to the user one year after the beginning of the supply. SL-ATR  Web-based platform where shippers are able to book primary capacity. This platform only allows to book capacity in the Spanish system.

Obligations under existing contracts remain unchanged Application to available capacity only Market-based allocation mechanism (auction with a reserve price based on regulated TPA tariffs) Only short-term (less than or equal to one year) The corresponding entry and exit capacity available at both sides of the IP will be offered and allocated through a single allocation procedure. PROPOSED PRINCIPLES Virtual interconnection point between the two countries (at least for common available capacity) Coordinated secondary market arrangements in both systems, to be applied to capacity rights if acquired under the Pilot Model TO BE EXPLORED Pilot Model

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