1. The integration of European electricity and gas markets
APEx conference
Sydney, 14&15 October 2008
Bert den Ouden, CEO APX Group

2. Contents Overview of APX Group Activities
Electricity market integration
Natural Gas in Europe
Gas Demand
Gas Supply
Gas trading
European Gas hubs
Storage and transport
APX vision

3. APX Group now Belpex Power NL (Dutch spot market)
+ Market Coupling NL-Be-France
+ Belpex: services + 10% share
+ recent: NorNed cable
Power UK (spot, prompt, OTC, fwd)
Gas UK (NBP, OCM balancing) + recent: gas storage trading
Gas ZEE (Zeebrugge hub)
Gas NL (TTF transfer facility) +recent: gas transport capacity
Gas UK NBP
Gas NL
TTF
“Endex”
futures
Power NL
Power UK
Gas
ZEE
Belpex
Announced:
APX (spot) integrating
with Endex (futures):
Dutch/Belgian Power,
TTF gas futures

4. ANGLO-DUTCH-BELGIAN STRUCTURE
71.82 %
25.5 %
2.68 %
€ Million
2006
2007
Energy cleared
5,324
3,933
Revenue
25.4
26.6
EBITA
9.8
10 %

5. Growth of APX volumes and members
250
APX Group volumes
600
NL gas
ZEE & NL Gas
Be Gas 21
UK Gas
0.68
200
UK Gas
500
UK Power 12
UK Power 3 19
NL Power
NL Power
0.93 9
400 15
150 8 74 67
average GWh/day
Members
300
408 58
360
100 54 54 52
339 46
200
287 60
254
264 50 41 36 36 50 39 34 27
100
136 27 27 29 94 80 24 48 50 12 19 20 31 36 36 38 40 41 13 57 39 53 33 37 44 21 23 4 13
1999
2000
2001
2002
2003
2004
2005
2006
2007
1999
2000
2001
2002
2003
2004
2005
2006
2007

6. European electricity market integration

7. European electricity market
Achievements
Free customers
Transmission System (grid) operators
Efficiency of utilities
Role of regulators
Shortfalls
Volatile prices
Low liquidity in each market
Large price differences between markets
Transport constraints
Inefficient use of transportation
Market concentration
Fragmented market
Solution: market coupling (implicit auctioning) Florence Forum 2004 ?

8. Market Coupling Operation
Old situation:
Separate Dutch and French markets - no Belgian market
Spot markets and cross-border flows separate sequential
Results sub-optimal and often inconsistent:
Limited liquidity, large volatility
Large price differences, yet incomplete capacity use (60% of time)
Counter-price flows (40% of time)
Initiatives to implement MC from 2001
Plans to found Belgian PX
Florence Forum 2004 support for MC in Europe
based on proposal Europex and ETSO
Agreement in 2004 on TLC. Result:
One integrated system, 1-step operation
Spot and cross-border flows in one step
Belgian power exchange Belpex
3 PX’s and 3 TSO’s co-operating
Rotating MC operation
Started 22 Nov 2006
 TenneT
APX
Bel
pex
 Elia
Power
next
 RTE

9. Market coupling needs a day-ahead auction at both sides of interconnector
Transportation capacity:
Allocated together with the day-ahead power
Utilized to the maximum
Cannot be hoarded
100% utilization
Flows in right direction
A market with:
Lower risks
Better access smaller parties, end users
Better liquidity, lower volatility, robust index
Price convergence
Day-ahead
auction A
Day-ahead
auction B
Price
Price
exports
imports
Volume
Volume

10. Price convergence after Market Coupling
Daily average prices for TLC countries 20 40 60 80
100
120
Nov 2006
Dec 2006
Jan 2007
Feb 2007
Mar 2007
Apr
Date
Price
(Euros/MWh)
Powernext
Belpex
APX
market coupling

11. Price convergence through market coupling
Experienced
Hourly price difference
NL-France, €/MWh
Simulated
Hourly price difference
France-Germany, €/MWh 9%
24%
19%
40%
38% 4%
19% 3%
∆P >10 €
∆P 1-10 €
51%
68%
∆P <1 €
52%
Equal price
“copper plate”
54% 8% 9%
Historical
Prices
Simulated after
Market Couling
Before Market
Coupling
Winter 2006
After Market
Coupling
Winter 2007

12. European electricity market?
Regional market coupling
Functioning:
Nord Pool
TLC (Fr-B-NL)  CWE (Fr-B-NL-G)
Mibel (Iberia), GRE
Other regions: EU scheme of regional development
Projects:
NorNed (No-NL cable)
German-Danish coupling
BritNed (NL-UK) cable
Inter-regional possible “Dome” coupling:
“Loose” (volume-based) coupling between regions
“Tight” (price-based) coupling within regions

13. BritNed cable and market coupling perspective: UK and NL day-ahead prices
average GB
average NL
Difference
GB and NL Day Ahead Price
GB (LEBA)
March - August 2008
NL (APX)
120
100 80
MWh 60 / 40 20
01/03/08
01/04/08
01/05/08
01/06/08
01/07/08
01/08/08
Date

14. European gas market

15. Changing Demand Main uses of gas in Europe today Power Generation
Industrial fuel
Commercial and domestic space heating
Petrochemical feedstock
And in the future …
Increased demand versus energy saving
More power generation including fuel switching, CHP
Natural Gas vehicles?
Gas conversion into fuels?
Europe consumed 5993 TWh gas in 2006, approx 20% of total world consumption.
Biggest consumers are benelux & UK.
Key Drivers:
Increased use of gas for power generation.
Extension of distribution networks in countries such as portugal and Greece.
Growth in NG vehicles.
Fuel switching from coal and oil for power generation.
EC forecasts that gas’s share of energy supply will increase from 14% in 2004 to 27% by 2030.

16. European Gas Consumption
Total 2005 = TWh
Total 2006 = TWh
European Consumption:
~ stable year on year
temperature-driven
strong seasonal factor
Slight decline year on year however gas is a growing source of primary energy in Europe with an average growth in consumption of around 2% over the last five years. This is expected to continue.

17. European Gas Production
Total 2005 = TWh
Total 2006 = TWh
Overall change in European Production:
~ - 3% year on year

18. Changing supply Continuing depletion of UKCS New supplies from Norway
Production
Continuing depletion of UKCS
New supplies from Norway
Important role of Russia
Role of Algeria
LNG surge
Rising importance of Imports to balance supply/demand mismatch
Increased imports from Russia
LNG
And in the future …
UK was largest producer until 2005 but is showing the fastest fall in production rate. It is now a quarter below where it was in 2000 (where it peaked) and this level of decline is expected to continue with levels falling below the level of Dutch production by around 2015.
Norweigian production is rising and expected to grow to around 1300 TWh/yr by 2010.
Despite increasing output from Norway Europe’s gas production will continue to decline. The European Community forecasts that production will fall to 2687 TWh by 2020 and 2432 TWh by 2030.

19. Algeria to Italy & Spain
European Gas Hubs
Norway
< 125 bcm/yr
Russia
< 200 bcm/yr
Nordstream
DK/Sw
BEB
NBP
TTF
ZEE
EGT
LNG
150 – 200 bcm/yr
CEGH
PEG
Nabuco pipeline
PSV
Algeria to Italy & Spain
MS-ATR

20. European Gas Hub and Exchange Volumes (TWh)
Size of gas hubs and exchanges
European Gas Hub and Exchange Volumes (TWh)
Market
Location
Type
2005
2006
2007
NBP
ICE
APX OCM
UK NBP
Virtual hub
Futures exch.
Spot / balancing
5,768
396
124
7,058
536
148
11,800
1,100
131
TTF
Endex
APX TTF
NL TTF
Spot exch.
122 -
0.2
201 12
320 21
0.6
ZEE
APX ZEE BE
Physical hub
463
0.02
500
447
0.3
MS-ATR
Spain
Virtual hub*
260
281
438
CEGH
Austria 8 99
197
PSV
Italy 29 78
112
BEB
EON.GT
EEX
Germany
Spot/Futures Exch 5 13 66 70
0.5 / 4.3
PEG’s
Powernext
France
Virtual hub x 5
Bal. Exch 45 77
118
1.2
* = inc. LNG

21. Hubs volume compared (Sep 07 – Aug 08)

22. The “Gas Roundabout” Added Value Trading Quality conversion
CONSUMPTION
IMPORT
Profile
Added Value
PRODUCTION
EXPORT
Generic model.
Does not distinguish NL from other counties that hold the same ambition
Profile
Transport & Transit
Storage & Flexibility
LNG

23. International Gas Market integration
Current products: Balancing, Spot, Storage, Transport capacity, Endex TTF futures. To come:  More storage / transport  More curve products  Spreads / Swaps  Spark spreads
TTF
BBL
NBP
LNG
connector
Inter
LNG
ZEE
LNG

24. Gas and power markets

25. Price Convergence - power Spot prices APX NL, APX UK, NordPool, EEX Average daily spot prices €, July 2007 – December 2007
APX NL
APX UK
NordPool
EEX
* UK prices converted to euro based on daily exchange rate

26. Price convergence – gas Natural gas day-ahead prices €/MWh
TTF
NBP
Zeebrugge

27. Products & Markets: today and developments e = Endex b=service to Belpex
Country/Commod.
Product
Gas
NL (TTF)
UK (NBP)
Gas Belgium
Power NL
Power UK
Belgium
Continuously traded intra-day  b
Day- ahead auction
study
Planned
2008
Transport and/or storage capacity
2008
Futures e
OTC Clearing
Spread / swap contracts
Spark spread contracts

28. B. den Ouden b.denouden@apxgroup.com
Amsterdam
World Trade Center
Strawinskylaan 729
1077 XX Amsterdam
The Netherlands T F
London
6th Floor
21 Southampton Row
London WC1B 5HA
United Kingdom T F
Nottingham
Ergo Building, Mere Way
Ruddington Fields
Nottingham NG11 6JS
United Kingdom T F
Energy Exchange of the Year 2008