Beruflich Dokumente
Kultur Dokumente
n8
11l
Source: Datamonitor D A T A M O N I T O R
Changes of note in the TTF
Price volatility in the TTF is typically driven by supply disruptions particularly with regards to Norwegian deliveries and
temperature fluctuations. Market liquidity is also influenced by the interconnector utilization rate between Belgium and the
Netherlands and by the amount of UK exports transported from Belgium.
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A change of note and one that has driven higher traded volumes on the TTF is the fact that the unidirectional Balgzand
Bacton Line from the Netherlands to the UK acquired virtual reverse flow in Q1 2011. Until then, the pipeline had only
allowed physical flows in the direction of the UK due to pressure differences and a lack of compression at the UK end of the
pipeline. In February 2011 BBL Company began auctioning capacity to interruptible reverse flow (IRF) gas from the UK to
the Netherlands for the period April to June 2011. In practice this change means that physical flows are canceled out from
the Netherlands to the UK through the pipeline and that flows will be more responsive to demand in the two countries. The
IRF service allows shippers to nominate gas flows to be deducted from the capacity booked from the UK to the Netherlands
from the physical flows in the reverse direction. IRF capacity is sold in tranches of 30,000kWh, and Balgzand Bacton Line
data show that all auctions up until May 2012 have sold out.
Also of note is the fact that the Balgzand Bacton Line is not likely to pursue physical reverse flow capacity. It conducted a
consultation in July 2011 regarding possible market demand for physical reverse flows as required under EU regulation, but
due to limited interest BBL Company indicated that it would submit an exemption request to the EU authorities in March
2012.
A second notable development that has driven higher traded volumes is the change in balancing regimes. Changes to the
Dutch Gas Act (Gaswet) came into effect on April 1, 2011 to improve what the Netherlands Competition Authority
considered to be limited success in the wholesale gas market to date. As a result GTS implemented a new market model
and a new balancing scheme. As of April 1, 2011 market players are able to buy or sell gas on the TTF directly as opposed
to going through GTS, which was previously responsible for keeping the system in balance. Also of note is the fact that in
April 2011 a regulatory measure came into effect, which means that all traded gas in principle should be delivered on the
TTF. As a result of these changes and the introduction of new products on the back of the new balancing regime, the churn
ratio in Q2 2011 reached 5.2 due to higher volumes of trade and a fall in physical volumes. In October 2011, an all-time
monthly high was reached with a total of 128.5GWh traded on the within-day market.
In November 2011 gas supplier GasTerra was designated as the first market maker for APX-ENDEX hourly flow products
on the TTF spot within-day balancing market, for a period of at least six months. The aim of this was to improve liquidity in
the market in addition to the market change in April 2011 that allowed participants to do their own balancing.
GasTerra started auctioning natural gas storage services in March 2011. The auctions are organized by power exchange
APX-ENDEX (which has been appointed as the gas exchange operator) and followed talks between GasTerra and the
Netherlands Competition Authority to improve competition in the market.
Regulation in the Dutch market
The Netherlands Competition Authority is committed to ensuring the efficiency and development of the TTF as well as
encouraging a single European gas market. In addition to contributing to measures to promote competition such as product
diversification on the TTF, the authority is vigilant with regards to possible anti-competitive behavior on the TTF.
Developments include:
In July 2011, the Netherlands Competition Authority investigated the possibility that prices on the exchange
had suffered from hedge funds and speculators and found that there was only a small degree of such
activity on the TTF due to the majority of trading being predominantly physical. In the same month the
authority also revised its decision regarding anti-competitive behavior by GasTerra.
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The authority gave its approval in late March 2011 for GTS to experiment with an auction of bundled
transport capacity between GTS networks and its German affiliate, Gasunie Deutschland. This was a step
towards a single gas market and capacity prices that reflect market conditions to a greater extent.
In December 2011 the authority increased the tariffs of Dutch regional network operators of natural gas and
electricity by 8.9% effective as of January 2012, thereby increasing household energy bills by some 23 per
annum. This price rise, however, follows a return of 400m in excess revenues by GTS to network uses
decided in October 2011.
In May 2011 the authority released the draft method decision for the regulation of GTS for the current and
previous regulatory period in order to increase transparency and create greater security for future
investments.
Major players in the market
The Dutch wholesale gas market has seen an increase in the number of players to over 70. This section analyzes a
selection of the major players and notes relevant points regarding their sales, strategies, and operations.
GasTerra
GasTerra is the largest supplier of natural gas in the country. It buys and sells gas and provides gas-related
services. It has exclusive access to the Groningen gas field and also has the obligation under the
government's "small fields policy" to take gas from the majority of small fields at a representative price.
GasTerra's most recent financial results revealed a record turnover of 21.1bn in 2011 and a lower volume
of gas sold. This high turnover was driven by the higher-than-average price of gas, whereas the volume,
which was 5% lower than in 2010 at 87bcm, was due to a relatively mild winter. Operating profit totaled
44m, a 3.5% increase on 2010, while net profit at 36m was stable. Of its total sales, domestic gas sales
in 2011 amounted to 38.1bcm, a slight drop compared with 2010. GasTerra supplied 9bcm to non-domestic
consumers in 2011, and 48.6bcm to customers abroad. Its major foreign customers in 2011 were Germany
(18.8bcm), the UK (10.6bcm), and Italy (7.1bcm).
In November 2011 GasTerra was designated as the first market maker for APX-ENDEX hourly flow
products on the TTF spot within-day balancing market, for a period of at least six months. In 2011,
GasTerra expanded the range of products and services available on the TTF, providing private sector
companies with more options to supply their customers. In January 2011 it announced the provision of a
virtual gas storage service to provide seasonal flexibility to the market for a total of 19TWh. GasTerra now
provides a temperature-dependent product whereby gas supply is dependent on the next day's predicted
temperature. Customers can also opt for its Spark Spread product, under which supply volumes will be
determined based on the relationship between electricity and gas prices. This product is particularly
interesting for customers with gas-fired power stations that procure gas to generate electricity as and when
it is profitable to do so.
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Other developments include a long-term agreement to supply natural gas to Eneco, the Rotterdam-based
energy company, signed in January 2012. The gas will be supplied via the TTF, and the amount will vary
each day depending on outdoor temperatures and wind speed.
Nederlandse Aardolie Maatschappij
The Nederlandse Aardolie Maatschappij is one of the largest producers of natural gas in the Netherlands, accounting for
around 75% of Dutch demand, and is a jointly owned subsidiary of Shell ExxonMobil. The company undertakes the
exploration and production of crude oil and natural gas. Annual production in 2010 totaled 67.3bcm, a 26.3% increase on
2009. 53bcm of the volumes generated in 2010 were purchased by GasTerra.
Essent
Essent, which is part of RWE Group, is a long-standing gas player in the Dutch market. It is the third largest
power producer and the leading player in the gas retail market. Essent has installed power capacity of
4,046MW from gas, hard coal, and biomass. It also holds a minority stake in the sole nuclear Borssele plant
in the Netherlands.
Essent's retail sales base in the Netherlands and Belgium numbers 4.370 million customers, of which 2.024
million are gas customers. In gas volume terms, Essent sold 50.8TWh to its non-domestic customers,
compared with 36.9TWh to its domestic customers.
The company made an operating profit of 245m in FY2011 from revenue of 5,818m, a fall of 37% and
11% respectively compared to FY2010. Gas sales decreased by 16% to 3,460m, partly due to some of its
larger industrial and corporate customers switching suppliers as well as lower demand in general due to
higher temperatures.
Recent investments of note include Essent's two new combined-cycle gas turbine power stations, Claus C
and Moerdijk 2. They came online in January and February 2010 with a net installed capacity of 1,304MW
and 426MW respectively. In addition to these investments, Essent has also invested in renewable
technology research with the construction of a 100m meteomast situated 75km off the coast of Ijmuiden in
the Netherlands. The aim of the research is to inform future wind farm projects far out to sea.
Nuon
Nuon, which has been part of Vattenfall Group since 2009, undertakes gas retail, trading, and storage
services in the Netherlands where it has a market share of 30%. It has a client base of some 2.6 million
customers, of which 1.9 million are gas customers. Vattenfall previously had gas production capacity
through Nuon Exploration and Production, but this was sold to Tullow Oil in June 2011. Nuon's net profit in
2011 was 299m from a net turnover of 4,450m. In terms of volume, its sales amounted to 5.5bcm.
Vattenfall Group's strategy appears to be focused on the core activities of sales, trading, and storage in the
Netherlands. Its two other key markets are Germany and Sweden. In line with this strategy Vattenfall Group
has divested its existing gas fields in the North Sea and some of its activities in Belgium, indicating that it
continues to pursue investment in storage capacity.
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Nuon has a number of gas-related investments in process, including:
The construction of the multi-fuel Magnum power plant in Eemshaven, which is due to be commissioned at
the end of 2012. The plant has a production capacity of 1,311MW, with a predicted load factor of 58% due
to three combined cycle gas turbines composed of a gas turbine, a steam turbine, and a generator.
A gas-fired plant with an operating capacity of 435MW called Hemweg 9. The plant will be operational by
the end of 2012 and will supply Amsterdam.
A gas-fired power plant is being built in Diemen with a capacity of 435MW of electricity and 260MW of heat.
Nuon is considering expanding its gas storage capacity at Zuidwending (Groningen Province) in
collaboration with AkzoNobel to a maximum of four caverns and a gas installation to store high-calorific gas.
This would supplement Nuon's existing storage facility in Epe, Germany, where it has 280mcm of natural
gas storage as of April 2011.
GTS
Title transfers of gas on the TTF are registered by the GTS by means of a "nomination," which states the characteristics of
the transfer (quantity, period, and parties). Only shippers that are admitted into the GTS and have a TTF subscription are
allowed to trade. GTS earns revenue from shippers through monthly subscription fees and a variable volume-based fee.
Matched trades are nominated by GTS on the shippers' behalf. APX-ENDEX acts as the central counterparty to all trades.
Contracts are fully collateralized thereby reducing risks, and settlement cycles are fully undertaken by APX-ENDEX's
financial services team. All members have access to realtime credit and settlement details and a 24/7 customer support
help line.
GTS allocates firm capacity on an online "first come, first served" basis. For a shipper, there is no reservation or separate
conditions for transit contracts. Using the TTF, a shipper can transfer gas that is brought into one of the 50 entry points of
the national grid to one of the 1,100 exit points on the grid. Should capacity be fully booked, the shipper can request
interruptible capacity based on three tranches, where the possibility of interruption is reflected in the price. The proceeds
from the selling of capacity go directly to GTS's revenue. At the import points (the borders with Germany and Belgium),
GTS makes high-calorific gas firm transmission capacity of over 38GW available, and at the export points with Germany,
Belgium, and the UK, GTS makes firm capacity of over 66GW available. For exports of low-calorific gas at border points
with Germany and Belgium, over 87GW is available.
Since April 1, 2011 shippers have benefitted from the new balancing regime and market model. Every market party on the
TTF is now responsible for its balancing position and can access hourly information regarding its balancing position and
that of the gas system. In the new regime, each party that transports gas can now contribute to keeping the network in
balance. These players are known as "program-responsible parties." Previously, GTS was the only player that was both
authorized and capable of keeping the network in balance. In practice, this meant that every day shippers had to send in a
program containing predictions of their entries, exits, and trades. During the gas day, GTS would compare the program with
the actual allocation on a near realtime basis to determine the portfolio imbalance. The calculated imbalances per portfolio
are accumulated and shared with market parties on an individual basis through the portfolio imbalance signal (POS). The
summation of all POSs is called the system balance signal and is published on the same timescale as the POS.
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If balancing is required, GTS buys gas from a balancing platform where market parties can offer gas. This system
encourages shippers to keep themselves in balance as GTS can identify shippers that are causing imbalances and can
target the balancing costs to them. Specifically, GTS engages a corrective bid ladder mechanism if the imbalance falls into
a certain zone. Shippers that find themselves in an imbalance can use their own physical means to correct it if possible,
trade on the TTF, or enter into other commercial balancing contracts,. If they do nothing they bear the costs of the bid price
ladder system. The Netherlands Competition Authority is currently evaluating this new balancing system.
Italy
This section provides a summary of the recent movements in the Italian PSV market.
Market overview: demand and supply
Compared to other European countries Italy consumes a large amount of gas: some 60% of the country's electricity is
produced in gas-fired plants. Final consumption in 2009 was 44bcm (473TWh), of which 27% was used for industrial
purposes, 46% for residential purposes, and 24% for commercial and public services. In 2010 natural gas consumption
increased, driven mainly by the residential/services and industrial sectors. Despite stagnant demand in 2011, the
Regulatory Authority for Electricity and Gas in Italy expects demand for gas to increase substantially, mainly driven by the
fact that the country has abandoned its nuclear power generation program. According to the authority total demand rose in
2010 to 173.5bcm (including volumes sold and resold in the wholesale and retail markets).
2009 national data and IEA data show that total domestic supply was 76.7bcm (826TWh) in 2009, of which domestic
natural gas production was 7.88bcm (85TWh). Hence, imports made up the majority of domestic supply at 68bcm
(732TWh). In 2010, domestic production increased to 8.3bcm and imports rose to 75.3bcm. Thus 10% of the country's
gross gas demand is met from domestic production and 90% from net imports.
Italy's domestic production of gas has continued to fall, increasing its dependency on imports from non-EU markets. Most
import activity is based on long-term oil-indexed contracts. Nearly 90% of gas imports originate in non-EU countries
including Algeria, Russia, Norway, Libya, and Nigeria. Of these, Algeria accounts for over one third of Italy's gas demand.
Most imported gas is transported through pipelines (88%); however, since 2009 there has been a notable rise in the
amount of LNG transported by ship due to progressive use of the Rovigo regasification terminal (also known as the Adriatic
LNG Terminal), which treats gas from Qatar.
PSV developments
The PSV has struggled to gain momentum and remains at an early stage of development. Liquidity is very low on the PSV,
typically under 2.0. However, some progress has been made that is worthy of note. In 2010, direct imports of gas
accounted for 51% of wholesalers' gas procurement. 22% was purchased at the PSV, up from 15% in 2009. Hence, the
PSV's significance is growing and is being developed in response to regulatory measures to increase its liquidity. In
particular, in 2010 the Regulatory Authority for Electricity and Gas introduced an obligation to offer quotas of imported gas
on the PSV. As a result, the number of traders grew to 106 from 82 in 2009. Transactions on the PSV reached 35.9bcm in
2010, a 66% increase on 2009, representing 43% of gross national consumption at 83bcm.
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Prices on the PSV are typically higher than spot hub prices and currently hover around the 25/MWh level. Further, PSV
prices are more independent than prices on other hubs and follow their own fundamentals. The main reason for this is that
Italy is more exposed to potential impacts on its natural gas imports as a result of unrest in North Africa and the Middle East
than other European countries, due to its dependence on Algerian and Libyan imports (Italy imports approximately 10% of
gas from Libya). Imports from these two areas constitute some 35% of Italy's gas imports, which partially accounts for the
higher prices observed on the PSV. Of note is the complete shutdown of gas imports from Libya via the Greenstream
pipeline in Q1 2011. Although this had the potential to affect prices, in reality additional Russian suppliers compensated for
the difference. Other factors that affect PSV prices, as on other hubs, include weather variations, import pipeline outages
(for example, that of the Swiss Transitgas pipeline in 2010) or maintenance in the Trans-Austria pipeline, which supplies
Russian gas through Austria to Italy.
M-Gas, Italy's new exchange
In March 2010 Italy's Ministry for Economic Development set up a trading platform for imported gas called P-Gas, on which
importers must place their quotas of imported gas for transfer. Domestic gas quotas were introduced to the platform in
August 2010. The spot market for natural gas, with Gestore dei Mercati Energetici (GME) acting as a central counterparty,
was launched in October 2010 and is called M-Gas. M-Gas began operations in December 2010 and consists of a day-
ahead market (MGP-Gas) with both a continuous trading mechanism and an auction trading mechanism; and the intra-day
market (MI-Gas), with a single-session, continuous trading mechanism. In addition, there is the gas balancing platform (PB-
Gas), which is also organized by GME. The M-Gas market currently has 33 participants according to GME.
Since the launch of M-Gas the Regulatory Authority for Electricity and Gas has considered the OTC PSV to be a secondary
market that is useful for providing operators with a commercial balancing tool, as well as its ability to replicate daily capacity
trading.
Trading volumes in the MGP-Gas and MI-Gas markets for the 2011/12 thermal year showed that the vast majority of trades
(45,910MWh) took place on the day-ahead market, compared with 7,800MWh on the intra-day market.
The volume of trade fell in the MGP-Gas market from 135,238MWh in 2010/11. The average traded volume per day on the
MGP-Gas was 1,836MWh in 2011/12, a fall compared with the previous year when the average traded volume per day was
1,982MWh.
GME balancing volumes for the 2011/12 thermal year amounted to 108,019MWh, with 23 participants buying or selling.
Virtual storage program
A prominent feature of the Italian gas storage sector is that the majority of storage is controlled by Stogit, which is
responsible for over 90% of storage capacity. The remaining capacity is held by Edison. Actual physical storage of natural
gas capacity at the end of 2011 was 15.0bcm, an increase of 5.6% compared with 2010 due to the development and
upgrade of investments made at the Fiume Treste, Minerbio, and Settala concessions.
In response to increasing demand for storage, the government introduced new measures in August 2010 to incentivize the
creation of additional storage capacity and to increase competitiveness in the natural gas market. The measures allow any
parties that inject natural gas into the network to increase their market share by up to 55% under the condition of building
new storage infrastructure or upgrading existing ones. The targeted capacity addition was 4bcm of new storage capacity.
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The proposal for this virtual storage program, which is due to start in October 2012, will mean that a section of the gas
exchange for both spot contracts and long-term and monthly contracts will be dedicated to the program, allowing gas to be
resold on the M-Gas exchanges. The total storage capacity available within the virtual program is 600mcm.
Competition and concentration in the market
The Italian market has great potential for development due to its geographical position, which allows it to have a strong
diversity of imports, and the penetration made by gas into the power generation mix. However, Datamonitor research has
shown that the spot market has made limited progress; it continues to suffer from a lack of transparency and in particular, a
lack of competition in the market, which continues to be highly concentrated.
The import and wholesale sector is dominated by Eni and its subsidiaries (including Snam Rete Gas, Stogit, and Italgas),
which control the majority of the market in terms of transport and storage, production, and imports. For example, the share
of gas imports held by Eni Group remains dominant at just over 38% in 2010. This concentration continues to hinder the
creation of a competitive gas market by limiting the amount of spot gas available in Italy.
The largest players in the market in terms of gas suppliers are Eni, Edison, and Enel, which collectively covered 73.4% of
the market in 2010, a 6.1% fall from 2009. There is, however, some improvement in competition. For example, the number
of suppliers in the wholesale market increased from 94 in 2009 to 105 in 2010, while the market share of the top three
companies on the wholesale market Eni, Enel Trade, and Edison fell slightly to 31% in 2010.
Regulation
The Italian regulator and energy services operator is the Gestore Servizi Energetici (GSE). As mentioned previously, GME
is the entity that organizes and manages the natural gas market M-Gas, where parties buy and sell at the PSV, which in
turn is operated by the Italian transmission system operator/balancing operator Snam Rete Gas. GME plays the role of the
central counterparty in M-Gas. The energy market comes under the remit of the Ministry of Economic Development.
A recent decision of note was that in August 2011 the Italian government raised a tax on the energy sector, the
consequence of which will be to create a tax surcharge on energy companies from 6.5% to 10.5% over three years, to
finish in 2014. This levy was also extended to distribution and transmission companies. As a result, Snam Rete Gas and
the largest utility in the country, Enel, saw their share value fall some 10% and 5% respectively in August 2011.
Active and major players in the market
This section evaluates the three major players in the Italian gas market and notes relevant points regarding their sales,
strategies, and operations.
Eni
Eni's main businesses include exploration and production, gas and power, refining and marketing,
engineering and construction, and petrochemicals. Its main subsidiaries in Italy are GNL Italia, LNG
Shipping, Enipower, Agosta, Societ Adriatica Idrocarburi, Compagnia Napoletana di illuminazione e
Scaldamento col Gas, Ecofuel, Eni Fuel Centrosud, Polimeri Europa, and Saipem (among others).
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Eni's net profit was 6.86bn in 2011, up from 6.32bn in 2010. In 2011, Eni transported 78.30bcm of gas in
Italy, down from 83.31bcm in 2010. Domestic sales amounted to 34.6bcm in volume terms in 2011, a small
increase over 2010.
Recent commercial events of note include Eni and Gazprom signing an agreement to renegotiate the terms
of certain long-term gas supply contracts in Italy, retroactive to the beginning of 2011.
Eni has also completed the 100% acquisition of the capital of the Belgian companies Nuon Belgium and
Nuon Power Generation Walloon, as part of its strategy to consolidate its leadership in the European gas
and electricity market.
Edison
Edison is engaged in power generation and electricity and gas distribution primarily to wholesale customers and distributors
in Italy. The company's business areas include electric power (the production and sale of electric power) and hydrocarbons
(the supply, production, and sale of natural gas and crude oil).
Its net profit was 887m in 2011, a 29.8% fall from 2010. Within Italy, Edison's total natural gas sales in 2011 were
15.2bcm. In 2011, production of natural gas, counting the output of both Italian and international operations, grew by 14.2%
to 2.2bcm. This was achieved due to an increase in the production from the Abu Qir concession in Egypt. The company
has three gas storage centers, one of which is under development.
In its outlook for 2012, Edison indicated that the renegotiation of the contracts to purchase gas from Libya and Qatar would
account for about half of 2012 earnings before interest, taxes, depreciation, and amortization, which will be in line with the
amount reported in 2010, net of the contribution provided by the sale of its Edipower operations. In 2012, following the
planned divestment of Edipower and the concurrent reorganization of the company's governance, Edison aims to improve
its financial profile and, consequently, its investment and development potential both in Italy and abroad.
In November 2011, Edison was awarded three new hydrocarbon exploration licenses in Norway, in the Barents Sea, the
Norway Sea, and the Southern North Sea. Edison, through its subsidiary Edison International, received three new
hydrocarbon exploration licenses in the Norwegian Continental Shelf that had been put out for bids by the Norwegian Oil
and Energy Ministry.
The licenses include:
Blocks 7124/1 and 2 in the Barents Sea with Edison as operator with a 60% stake, through a joint venture
with North Energy.
Block 6407/8 in the Norway Sea with Edison as operator with a 60% stake, again through a joint venture
with North Energy.
Blocks 7/1 and 2 and 16/10 in the Southern North Sea, with Edison having a 10% stake through a joint
venture with Talisman Energy (40%, operator), Det Norske (20%), Skagen (10%), and Petoro (20%).
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Enel
Enel is Italy's largest power company and its activities stretch along the value chain. Some of its many subsidiaries include
Enel Distribuzione, Enel Green Power, and Enel Produzione.
The company had a resulting cash flow from operations of 11,713m in FY2011 from revenue of 79,514m, in line with
results from the previous year. In particular, gas sales and transportation revenue generated 3,624m, an increase of 1.4%
from 2010. Domestic gas sales decreased, however, in both the mass-market retail segment and in the business customer
segment to a total of 4.6bcm sold domestically. Falling sales and in particular the difficult macroeconomic situation in Italy
led to a lowering of Enel's credit rating to BBB+ from A- in March 2012.
Strategic developments of note include the following:
A strategic agreement between General Electric and Enel Distribuzione (which manages 85% of Italy's
distribution network) to develop projects for energy efficiency and cut carbon dioxide emissions throughout
Italy. The agreement is expected to last until December 2014.
Enel reached an agreement for the purchase of 18.375% of the mineral interest in a gas field in Algeria
from the Irish company Petroceltic International. Following a joint appraisal by Enel and Petroceltic of the
Ain Tsila field, which is covered under Petroceltic's permit, the two companies will be in a position to
undertake formal application to the Algerian authorities to develop and extract gas from the field. Gas
production would start in 2017.
Enel is planning to build a new gas storage site at Romanengo in a joint venture project with F2i. The joint
venture, Enel Stoccaggi, involves the construction of a new gas compression and treatment plant and the
drilling of five new wells. The project, once approved by the Ministry of Economic Development, will take at
least two years and will contribute to Italy's gas security.
Enel has been active in its investments and divestments in 2011 both domestically and abroad. For example, the company
expanded its renewable position in Europe through an acquisition by Enel Green Power Espaa, which acquired a 16.67%
stake in Sociedad Eolica de Andaluca. The latter owns two wind farms with a total capacity of 74MW.
Iberian Peninsula
This section focuses on providing an update on the Iberian market, and Spain in particular.
Market overview
Spain, which is the major importer of LNG in Europe, is a market that Datamonitor has previously considered as having
made substantial progress and one that has significant potential. The Spanish market had two factors that could have given
allowed it to develop in the short-term, namely the rapid growth of gas demand, particularly in gas-fired generation, and the
proposed Iberian single gas market MIBGAS, which was expected to drive liquidity. However, both of these developments
have failed to materialize.
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The virtual balancing point Centro de Gravedad was created in 2005, along the lines of the UK's NBP or the Dutch TTF.
However, there is still no organized gas hub to provide a price reference. Most of the gas exchange in Spain is conducted
through the OTC market on an electronic trading platform called MS-ATR, which is managed by Enags. The volume of
energy traded over the counter amounted to 1,004.7TWh in 2010 and there are approximately 33 active parties on the
platform. Due to the bilateral and anonymous trading from OTC trades, information is not publically available and thus lacks
transparency. Considerable progress needs to be made to promote competition and increase transparency in the OTC
market.
Natural gas consumption continues to be high but has not grown as much as expected due to increased renewable energy
production as opposed to gas-fired electricity generation. Natural gas consumption in Spain reached 400.9TWh in 2010, a
0.4% decrease on 2009. On one hand, this demand figure reflects a 10% increase in conventional demand for natural gas,
but it is more than offset by the 15.7% reduction in gas demand as a result of renewable energy production. Although
renewable energy subsidies for wind in the country are variable and subject to annual review, the solar photovoltaic sector
in particular is still growing, with an estimated installed capacity of approximately 2.5GW by the end of 2013. Thus, demand
for gas in electricity generation can reasonably be expected to continue to increase only modestly.
Attempts to build a single Iberian gas market (MIBGAS), are still under way. Datamonitor notes more encouraging progress
in inter-regional co-operation through the South Gas Regional Initiative between Spain, Portugal and France.
Some brief points of interest regarding the Spanish market include:
Some two thirds of natural gas supplies to Spain and Portugal come in the form of LNG. The price paid for
LNG in the peninsula therefore stands out as a key determinant of the cost of imports of natural gas in that
region. Relative to other importers of LNG, both Spain and Portugal pay low prices for their LNG imports,
which is clearly a price advantage given the relative cheapness of LNG compared to pipe gas delivered
under long-term contracts. LNG prices for the Iberian Peninsula hovered around the 19/MWh mark in
2011, which is slightly higher than the price of LNG delivered to the UK at just under 17/MWh. Natural gas
border prices in 2010 increased to 19.48/MWh.
LNG continues to dominate as the main source of domestic gas supply. Given the very small quantity of
domestic production 1,201GWh in 2010, accounting for just 0.3% of demand most domestic gas
demand is imported in the form of LNG (75.5%), with the remaining gas imported via pipelines from several
other countries. The top four exporters to Spain include Algeria (approximately 32%), Nigeria (20.0%),
Qatar (15.0%), and Norway (9.2%). In total, Spain imports from up to 14 different countries, giving it a high
diversity of sources and therefore low dependency on any one source of supply.
MIBGAS remains in development, and more importantly lies within the remit of the wider South Gas
Regional Initiative to create a southern regional gas market that includes France, Spain, and Portugal.
MIBGAS development to date has resulted in public consultation processes on harmonizing cross-border
transmission gas tariffs between Portugal and Spain. South Gas Regional Initiative achievements to date
include the development of interconnection capacity in 2013 and 2015.
MIBGAS published its general principles and organizational model in 2008. It is the smallest of the regional
gas initiatives but it is far from the least important on a strategic basis, in light of the amount of LNG
capacity in the region.
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In terms of infrastructure, six LNG terminals are operational with an additional one planned for 2013 in
Gijon, in the Asturias region. The terminal will have a capacity of 300,000m. All capacity from Spain's LNG
terminals is regulated and can therefore be accessed by new players. With the exception of the new Gijon
terminal, approximately 61bcm per year of entry capacity is covered by LNG terminals.
New pipeline additions include the Medgaz pipeline with Algeria with an import capacity of 8bcm per year,
which has been operational since April 2011. Future capacity will be added under two open season
procedures in 2013 and 2015, which will increase the interconnection capacity between Spain and France
under the South Gas Regional Initiative. Three years of work between country regulators and transmission
system operators have accumulated an additional 5.5bcm of added capacity as of March 2013 at the Larrau
interconnection, while 2bcm of capacity at the Irun-Biratou point in the direction towards France will be
ready by 2015. Thus by 2015 interconnection capacity will reach 7.5bcm from Spain to France.
Possible energy security risks were raised in 2011 by potential blockages of the Suez Canal, a key LNG
supply route, due to political unrest in Tunisia and Egypt. However, no disruptions occurred. Measures to
increase security of supply include investments in 2010 in LNG storage capacity, and three new
underground storages planned over the period to 2014.
Supply diversification through Nabucco
Nabucco pipeline
The pipeline was expected to come online by 2013 and create a diversification of European gas volumes as a
consequence of reducing Europe's dependency on Russian imports. The pipeline thus would also give an impetus to the
Austrian CEGH market. Its development is therefore important to mention in any analysis of the European gas market.
The original Nabucco concept as it originally stood 4,000km transporting at least 30bcm per annum has made very
limited progress, and at present is suffering from reduced support. It is in danger of having its scope reduced into a
northern and southern split network.
One of the proposed northern routes, the "Nabucco West" pipeline, is a shorter version that would begin at Turkey's
western border, instead of going through the entire country. Other alternatives include the Trans-Anatolian Pipeline and the
South East Europe Pipeline.
The Trans-Anatolian Pipeline, led by the State Oil Company of Azerbaijan Republic, would follow the original Nabucco
pipeline route from Azerbaijan to the Turkey-Bulgaria border. However, its chances of success are limited by the fact that it
has not guaranteed access to the Shah Deniz 2 field volumes due to a lack of support from MOL, the Hungarian
shareholder of the Nabucco project.
Meanwhile, the South East Europe Pipeline led by BP would use existing pipes to pump Azeri gas through Southeastern
Europe through Hungary to reach Western Europe. Its reduced scope and cost compared to the Nabucco pipeline means
that there may be a greater chance of success and a lower perception of risk to investors. In order for these pipelines to be
realized, the spark margins for European utilities will have to grow to encourage higher demand volumes; currently margins
are sometimes negative due to high wholesale import prices.
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Currently, the pipeline consortium, has indicated a preference to guarantee supply volumes for the southern route of the
Southern Gas Corridor to the Trans Adriatic Pipeline, which will start in Greece, cross Albania and the Adriatic Sea, and
arrive in Southern Italy in Leece (the Puglia region). The Trans Adriatic Pipeline will be some 800kms in length and will
have a capacity to transport 10bcm of natural gas per annum with the ability to double these volumes. It is due to come on-
stream in 2017 and will have mandatory reverse flow capacity as required by the EU; this will provide greater energy
security to Greece and Southeastern Europe should supply be interrupted from Russia, enabling the redirection of North
African gas flows.
As indicated in the previous paragraph, the consortium has not yet chosen its preferred central European option. In June
2012 it is expected to choose between Nabucco West and the South East Europe Pipeline. Once this decision is made, a
route selection will be made by mid-2013.
Datamonitor expects Europe to continue to be dependent on Russian gas for at least the next five years. Indeed, Gazprom
has stated that it intends to increase its share of the European gas market to 30% by 2020. However, from 2018 the Shah
Deniz 2 field consortium can be expected to diversify supply through shipments of approximately 16bcm per annum
through Turkey. Although the 10bcm proposed in the first year through the Trans Adriatic Pipeline is relatively small
compared to the EU's total gas consumption, the Trans Adriatic Pipeline can be expected to have a significant two-fold
impact: firstly, by benefitting Southeastern Europe by giving it a dependable source of gas, and secondly, by opening up a
larger potential source of gas to Europe through the Caspian Sea.
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APPENDIX
Bacton Interconnector The gas transit pipeline that runs between the UK and Belgium and is capable of
reverse flows.
Centro de Gravedad (CDG) A natural gas hub located in Spain.
Central European Gas Hub (CEHG) A natural gas hub located in Austria.
Energinet.dk A state-owned electricity and natural gas transmission system operator in Denmark.
Gaspool (BEB) A German virtual trading point and a subsidiary of DONG Energy Pipelines, Gasunie
Deutschland Transport Services, ONTRAS-VNG Gastransport, and WINGAS Transport & Co.
GRTgaz A subsidiary of GDF Suez and a French gas transmission operator.
Huberator A subsidiary of Belgian transmission system operator Fluxys, which provides access and
associated services to the Zeebrugge Hub.
Mercado Ibrico de Electricidade (MIBEL) MIBEL constitutes a joint initiative between the Portuguese
and Spanish governments regarding the development of an internal electricity market. MIBEL allows any
consumer in the Iberian zone to acquire electrical energy under a free competition regime, from any
producer or retailer that acts in Portugal or Spain.
Mercado Ibrico do Gas Natural (MIBGAS) - Iberian natural gas market
National Balancing Point (NBP) A natural gas hub located in the UK.
Point d'Echange de Gaz (PEG) A French natural gas hub.
PEG Nord A French balancing zone comprised of PEG Ouest and PEG Est.
Punto di Scambio Virtuale (PSV) A natural gas hub located in Italy.
Take-or-pay contract Agreement between a buyer and seller in which the buyer is still obligated to pay
an amount even if the product or service is not provided.
Title Transfer Facility (TTF) A natural gas hub located in the Netherlands.
Ask the analyst
The Energy & Utilities analyst team can be contacted at asken@datamonitor.com.
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