1. ERGEG GRI NW Cross Border Gas Transmission Investment Virtual Simulation Specification and Design

2. Virtual Simulation Specification and Design Routes & Size 14.35 – 15.20 Adam Cooper (MLCE) & Mike Young (Centrica)

3. Stakeholder Involvement and Participation The Role of Stakeholders Virtual Simulation to model a process If not real, at least realistic Essential to gain involvement to be credible Inputs from Shippers / Traders and their requirement for capacity and view on its valuation Representing the users of the asset to be invested in

4. Shipper/Trader Inputs Reflecting actual use of asset –Delivery of gas to a consumer market –Movement of gas between Trading Hubs –Hybrids of these, e.g. Gas acquired at Hub for consumer market in another member state Gas delivered from outside EC for onward transmission to be sold at Hub Valuation of capacity based upon:- –Supply-demand gap –Expected price basis (inter-hub) –Expected gas re-sale margin –Availability of competing pipeline/route? Major inputs in the simulation design from Shipper/Traders –Routes –Size

5. Routes - principles Based upon key elements of German, Dutch, Belgian and French Hubs and Networks Between Trading Hubs Between Entry and Exit Points of the wider Trans-National networks Suggestions for routes for the Virtual Simulation

6. Virtual Simulation Case – Suggested Routes Route - Option 1 –NCG (EGT) to PEG Nord (via Belgium) –Conventional Route NCGVTPE.ON Gastransport EynattenExitE.ON Gastransport EynattenP2PFluxys BlaregniesP2PFluxys TaisnieresEntryGRTgas PEG NordVTPGRTgas

8. Virtual Simulation Case – Suggested Routes Route - Option 1a –NCG (EGT) to PEG Nord (Direct Germany to France) –Conventional Route NCGVTPE.ON Gastransport MedelheimExitE.ON Gastransport ObergailbachEntryGRTgas PEG NordVTPGRTgas

10. Virtual Simulation Case – Suggested Routes Route – Option 2 –TTF to NCG (EGT) –Conventional Route TTF VTPGTS OudeExitGTS OudeEntryE.ON Gastransport NCGVTPE.ON Gastransport

12. Virtual Simulation Case – Suggested Routes Route Option 3 –TTF to PEG Nord –Conventional Route TTF VTPGTS ZelzateExitGTS ZelzateP2PFluxys BlaregniesP2PFluxys TaisnieresEntryGRTgaz PEG NordVTPGRTgaz

14. Incremental Size - Principles For the Virtual Simulation we should assume a dedicated pipeline Therefore, size needs to be substantive in order to be realistic for a dedicated pipe In “real world” smaller increments may lead to enhancement of existing pipeline (e.g. compression)

15. Virtual Simulation – Incremental Size, proposals Option 1 –100 GWh/d –3.3 bcm/a (N) –9 mcm/d (N) Option 2 –500 GWh/d –16.4 bcm/a (N) –45 mcm/d (N)

16. Virtual Simulation Specification and Design Design of Market Test 17.00 – 17.30 Adam Cooper (MLCE) & Mike Young (Centrica)

17. Existing processes (1) Open Season –Indicative (non-binding) bids by Users –Initial “price schedule” based upon indications –Binding commitment by Users –Regulatory Approval –Allocation of incremental capacity across binding commitments

18. Existing processes (2) Annual Allocation –Establish Capacity Release Methodology which incorporates Regulatory Approval –Price schedule published, based upon x% to y% increment above existing capacity (baseline) at Px to Py –Users “bid” for quantity of capacity at each price step Binding, but can be amended up to “closure” –Users bids aggregated and compared with hurdle set to meet investment criteria, i.e. %age of investment project cost (? with NPV applied)

23. Existing processes - issues Pros & Cons of either approach –Open Season Ad-hoc process Lack of transparency, Black Box approach to Allocation Needs co-ordination between operators –Annual Allocation Regular diarised process Methodology established and available at the outset Equity of treatment of bidders Are there alternatives?

24. Innovative Case How to gauge the desired level of User commitment to the project? What level of risk falls upon:- –User –Community (other Consumers) –System Operators Incentive related to risk borne How is the hurdle for investment set? Requirement to build, or just to sell?