Study on Gas Storage Role: Reacting to Unfavorable Market Conditions, Ensuring Storage Industry Survival

1. Reaction to the study on the role of gasstorageJuly 15, 2015 Brussels

2. Agenda • A report whichdoes not reflect the reality faced by SSOs • 1.1. SSOs are facingunfavorablemarket conditions • 1.2. This situation is putting European security of supplyatrisk • How to ensure the survival of the storageindustry? • 2.1. Recognizing the insurance value of storage • 2.2. Recognizing the system value of storage • 2.3. Recognizing the existence of a flexibilitymarket

3. 1. A report which does not reflect the reality (1/2) • 1.1. SSOs are facing unfavorable market conditions • The study considers that there is no clear relation between the level of the seasonal spread and the storage filling rates … • … that SSOs today do not have difficulties in maintaining their historical storage levels… • …and that alternative sources of flexibility did not displace storage as a provider of seasonal flexibility. • This mocks reality! • Since seasonal spread decline in 2009, shippers tend to favor spot purchases and this negatively impacts the storage fillings levels, SSOs revenues and as well as the storage capacity made available in Europe.

4. 1. A report which does not reflect the reality (2/2) • 1.2. This situation is putting European SoS at risk • SSOs must compete with price signals that are below the costs they incur to operate and maintain their facilities. • This is not sustainable in the long run! • SSOs react with mothballing/closing of storage facilities, projects shifts, termination and depreciations… • The closing of an UGS is costly and almost irreversible (especially for porous storages) and is putting SoS at risk… • …whereas gas storage will be much needed in the future in view of the decrease of indigenous flexible production, the development of renewables, the pick-up of gas demand for power after ETS reform and the disappearance of the effects of recession.

5. 2. How to ensure the survival of the storage industry? (1/3) • 2.1. By recognizing the insurance value of storage • We agree with the study’s statement that the market does not give a proper valuation of the physical availability of the gas storages offer. • However, we disagree on the way the study proposes to address the insurance value of storage. • According to the GSE “toolbox” approach, each Member State should decide how to handle its strategy related to security of supply according the specifics of its country, its level of exposure to risks… • Market-based measures should be promoted as well as storage obligations or strategic storage depending of each country specificities!

6. 2. How to ensure the survival of the storage industry? (2/3) • 2.1. By recognizing the system value of storage • Restrictions imposed by high transmission tariffs can make accessing storage facilities less attractive and make them uncompetitive with other sources of flexibility – whereas storage reduces the costs that TSOs incure when operating their systems. • The benefits that storage brings to the whole system should be taken into account when setting the transmission tariffs at storage connection points. • This subject should be dealt with in the Network Code Tariff rather than in the review of Regulation 994/2010.

7. 2. How to ensure the survival of the storage industry? (3/3) • 2.1. By recognizing the existence of a flexibility market • Today, shippers can chose between a variety of competing flexibility tools especially spot purchasing. • Hub-based products are more economically attractive than storage and do not face the same third party access. • This makes competition very harsh for storage! • Therefore it is crucial to adapt the regulatory framework to the new market conditions by: • - ensuring a level playing field between all the flexibility sources. • - facilitating commercial innovation.

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