1. Gas storage: GB experience and future trends Sonia Brown Director, European Strategy and Environment GSE Conference - May 2007

2. 2 Overview Evolving gas supply picture in GB  Movement from ‘energy island’ to ‘net importer’  Storage becoming increasingly important supply source Important to have effective third party access arrangements  RTPA exemptions can be appropriate – but effective UIOLI is key  Greater access to info on operation of storage facilities is needed  GSE work in facilitating greater transparency = good step forward Market recognising opportunities in new storage  Significant investment taking place in new facilities  Government working to address barriers in planning process

3. 3 GB as an ‘energy island’ … Up to 1998  Largely self sufficient  Small volume imported from Norway 1998 - 2003  Self sufficient  GB = net exporter via IUK

4. 4 Market in transition UKCS = a mature production area  Production rates in decline Imports necessary to meet forecast demand GB as net importer – winter and summer?

5. 5 Market response Investment facilitated by:  Liquid traded market  Stable, light touch, regulatory environment  TPA ‘exemption’ process - open for investors to apply Over £10bn of private sector money is being invested to meet GB’s energy needs Market response to supply gap  Investment in new infrastructure  Storage / Pipelines / LNG import facilities

6. 6 Planned investment in storage  Up to 6.5bcm of new storage capacity currently in planning/development phase If all developed… would double existing capacity by 2010  New facilities are typically more flexible, with higher deliverability

7. 7 Changes proposed to planning regime Planning process has acted as a barrier to new infrastructure projects in GB  Ministerial “statement of need” issued last year: Sought to strike a better balance in local level concerns and national need for new storage infrastructure to provide secure energy supplies UK Government has this week published proposals to amend existing planning arrangements  Ofgem welcomes proposals for change – should assist development in new storage infrastructure

8. 8 Access to storage and LNG terminals Art 22 of EU Directive 2003/55/EC  Requires LNG terminal and storage operators to provide TPA  Developers of “major new gas infrastructures” can apply for exemption from Regulated TPA - where certain criteria are met  National regulators assess applications - competition assessment key  Commission has ability to veto decisions taken at national level “Light touch” regulatory approach adopted in GB  Competitive gas market – storage not a licensed activity  Ofgem undertakes monitoring role – ensure arrangements remain effective Customer protection important  Anti-hoarding measures necessary – effective UIOLI is key

9. 9 “Use It Or Lose It” Effective UIOLI arrangements = gas supplies optimised Need open access to quality information for arrangements to work effectively Mechanism to ensure capacity is not ‘hoarded’  Facilitates secondary trading…  …and new entry to market Allocation mechanism  Open, transparent, non-discriminatory

10. 10 GB storage – exemptions process Ofgem considers applications for exemption from RTPA requirements on a case-by-case basis  To date a number of RTPA exemptions have been granted to short and medium range storage as well as LNG importation facilities  Some exemptions granted on basis that facilities are ‘de minimis’  All exemptions issued require effective UIOLI to be in place  UIOLI arrangements may need to change in light of market conditions evolving – onus on exemption holders to keep under review  Rough facility is subject to separate undertakings regarding access  Hornsea facility is subject to negotiated third party access

11. 11 Aldbrough exemption application 9 cavern storage facility - off West Yorkshire coast Capacity = 420mcm - Deliverability = 40mcm/d Ofgem “minded to” grant exemptions to SSE and Statoil  Detailed assessment undertaken of effect on competition  Shares in market for medium to long range storage = relatively small  Facilities subject to negotiated TPA excluded from analysis  Effective UIOLI arrangements will need to be in place for both facilities  Ownership split between SSE and Statoil: operated as 2 separate facilities  Ofgem consulted widely on how to treat this type of arrangement – could there be two separate exemptions for the facilities?

12. 12 Transparency in Europe – storage information ERGEG Guidelines for Good TPA Practice for Storage System Operators  Voluntary provisions relating to transparency Capacity data Storage utilisation Only 13 out of 40 compliant Only 1 out of 40 compliant ERGEG monitoring report in Dec 2006 – results show scope for further improvement…

13. 13 European storage: information available  Improvements made to the stock and flow information available at French storage facilities  Release of aggregate storage information facilitated by GSE Transparency identified as key priority  Transparency workstream established to look at information on transmission and storage  Stakeholders currently developing proposals relating to the provision of aggregated injection/withdrawal storage data as well details of storage capacity Work underway as part of Gas Regional initiative

14. 14 Summary Storage already makes a significant contribution to meeting GB demand for gas – potential for this to become even greater:  Decline of UKCS – growing need for diverse supplies  Considerable planned investment in new facilities  Positive changes to planning process underway  Scope for continued improvements to transparency of information through the Gas Regional initiative and work of GSE  Wider compliance with GGPSSO is needed Ofgem welcomes the continued work of GSE on these issues

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