1. Risks and opportunities in the Danube Region’s natural gas sector
Dr. Péter Kaderják
Director
DRS PA2 Stakeholder meeting
July 13, 2017, Budapest

2. Natural gas: a major component of a low carbon electricity future…

3. … and for a future low carbon electricity generation fuel mix for the DR
Forecasted gross electricity fuel mix for SEE
Source: REKK – SEERMAP 2017

4. Third Package related EU legislation completed
Will the implementation of TP related legislation result in an efficient market in the DR?
Third Package related EU legislation completed
715/2009 as amended, in particular the Guidelines on Congestion Management Procedures
NC on Capacity Allocation Mechanisms (NC CAM)
NC on Balancing (NC BAL)
NC on Interoperability
NC on Harmonised Transmission Tariff Structures
Proposal for a Regulation concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010
Regulation on wholesale energy market integrity and transparency (REMIT)
Any immediate relevance for the DR?

5. Preconditions for gas to play its future role
Well functioning gas market…
Building missing infrastructure (CESEC)
Efficient use of existing infrastructure (IP tariffs)
Addressing local wholesale market concentration (NS2, long term capacity bookings)
…otherwise
Price risk
Supply security risk

6. Price risk of the current status: little benefit from the LNG ‚glut’ in SEE-DR
Wholesale price impact of 100 Bcm LNG inflow to the EU market on a 2016 reference, €/MWh
Overall price decrease but increased price divergence
Benefits in SEE part of DR are minor
Problems
Limits on physical evacuation of LNG from certain regions
Accumulated IP tariffs

7. Missing infrastructure

8. Several initiatives to address the missing infrstructure issue
PCI
CESEC
EnC/PECI
„Eastring”, TESLA
…and much more BG
-SB
TAP, LNG CR, IGB, BRUA
AL – Kosovo
SB - MK
CESEC: cost-efficiency, feasibility

9. Gas PCIs for the DR /CSEE
Competition of proposals
Limited feasibility to implement all

10. PECI and PMI projects, 2016
Welfare analysis laboratory and political compromises
Still limited policy / implementation / financing impact

11. CEF for the Romanian section of BRUA
CESEC priority projects agreed by all members and progress by September 2016
CESEC priority projects:
Trans-Adriatic Pipeline (TAP)
Interconnector Greece-Bulgaria (IGB)
Interconnector Bulgaria-Serbia
Phased Bulgarian system reinforcement
Phased Romanian system reinforcement
LNG terminal in Croatia (with phasing potential)
LNG evacuation system towards Hungary
CESEC conditional priority projects:
Connection of off-shore Romanian gas to the Romanian grid and further enhancement of the Romanian system
Interconnection Croatia-Serbia
New Greek LNG terminal
CR-HU reverse: pressure management agreement
open season delayed
CEF: € 180m
ROHUAT
KRK: 2 Bcm/y floating by 2018
CEF: € 102m
BG-SB
stalled
CEF for the Romanian section of BRUA
Romanian gas export barriers lifted by April 2017
Bulgaria: 4 compressor stations
Bulgaria-Serbia interconnector: renewed MOU and EU support
Signature of IA of GR-BG, BG-RO, RO-UA: tpa, contractual reverse flow on the Trans-Balkan pipeline. Physical reverse flow discussed
Croatia plan 2 Bcm floating LNG by end of 2018
FID for IGB
IGB: FID;
1,57 bcm booked long term
TAP: Commissioning started
KrK: On March 28, 2017 the service agreement has been signed;
Trans-Balkan reverse flow: slow process

12. Majority of new infrastructure to be built is in CSEE / DR (2016-20)
Infra included to the reference scenario
Maximum flow
Date of commissioning
Basis to include into reference for 2020
GWh/d
IT-CH
368
2018
FID
BG-RS 51
RS-BG
CH-FR
100
CH-DE
240
CH-DE2 79
2025
TR-GR2_TAP
350
2019
RU-DE
3 798
GR-MK_TAP 25
AZ-TR_TANAP
490
GR-BG 90
151
2021
GR-IT_TAP
334
SI-HR2
162
HR-SI
BG-RO 14
2016
RO-BG2
IT-AT2
189
AT-DE2 36
2017
DE-AT2
143
GR-LNG expansion 81
MT-LNG 24
2020
existing 2017
Infra included to the reference scenario
Maximum flow
Date of commissioning
Basis to include into reference for 2020
GWh/d
HR-LNG
108
2020
LNG strategy
RO-HU (BRUA)
126
HU-RO (BRUA) 77
FI-EE 79
2019
EE-FI
PL-LT (GIPL) 51
LT-PL (GIPL)
LT-LV 52
EE-LT
105
LT-EE 42
ES-PT 85
2021
PT-ES 70
ES-FR
110
FR-ES
120
Source: capacity is based on TYNDP 2017

13. Efficient use of existing infrastructure

14. Cross-border gas transmission tariffs often discourage cross border trading
Exit+entry tariffs in the CESEC region (€/MWh, Q1 2017)
Important tariff/market distortions detected
Coordinated tariffs to correct above-average tariffs is recommended
Tariff levels on interconnectors bringing spot gas to the region are critical
Lower tariffs across the board lead to increased spot gas supply and decent wholesale tariffs
Coloured boxes indicate above average E+E tariffs; average CB (E+E) tariff in region: 2.45 €/MWh

15. Missing bi-directional capabilities limit competition and reduce the level of SoS
Available physical IP capacities (without backhaul), mcm/day. June 2017 (ENTSO-G)

16. Local wholesale market concentration

17. High level market concentration can conserve higher wholesale prices

18. Nord Stream 2: renewed risk of CSEE market foreclosure…
Unilateral route dependence restored from North-West to CSEE
Eastern supply route option (gradually) cancelled
New infrastructure built after 2009 to be used to ship Russian LTC gas to CSEE instead of spot gas
Bypassing Ukraine makes some of the existing transmission assets redundant
Need for additional infra built-up
Scope for efficient wholesale market competition reduced
In high demand scenarios CSEE would face higher gas prices in the CEE region
April 2016, EP on NS2

19. …especially when combined with long term IP capacity bookings
Prisma, March 6, 2017
DE-CZ-SK reverse flow capacities booked by Gazprom. 80% between but some up to 2038
HAG, SK-HU: Hungarian regulator intervened; potential downstream market foreclosure
RU-DE: Lubmin II, Greifswald, Greifswald Entry, Vierow, DE-CZ: Deutschneudorf, Oldbernhau 2, CZ-SK: Lanzhot, Lanzhot 1, Lanzhot 2

20. Gas market outlook post-2020 for the DR
“Handing over” the lion’s share of infrastructure analysis and implementation to EnC and CESEC;
Shift in the focus of DRS PA2 activities from gas supply security to energy transition (and regional planning?)?
A modernized energy security concept?
Proposed future action / analysis:
The future of Ukraine’s gas sector reform and its integration scenarios with DR/CEE markets;
Establishing IGA criteria to promote credible cross-border sharing of gas storage assets (e.g. Hungary-Serbia, Hungary-Slovenia, Hungary-Turkey, Ukraine-Slovakia, etc).
The DR gas market in the context of the coming LNG glut

21. Should there be a shift in the focus of DR energy actions from gas SoS to support economic recovery and growth?

22. Thank you for your attention!