Second Asia Gas Buyers Summit

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Second Asia Gas Buyers Summit

• Regulatory mechanism and issues Experience in
  France and Europe
• By Jean-Louis Martinaud, Regulatory Affairs
  Senior Advisor
• Mumbai, the 2nd and 3rd of February 2004

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• - 1 - European and French gas markets
• - 2 - Opening up of the European and French gas
  markets
• - 3 - First results
• - 4 - Re-Organization of Gaz de France group
• - 5 - Consequences of the new regulation and
  
  
  lessons to be drawn

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• - 1 -
• European and French gas markets

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European gas market
Past evolution and prospects of primary energy
demand in Europe
Source World Energy Outlook 2002 - in Mtoe

• Natural gas consumption in Europe ( 15
  countries ) 407 Bcm ( 2001 )
• The share of natural gas should reach 32 in
  2020
• With an annual growth rate between 2.5 and 3

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• A mature system
• Developed from the 1960s on a national basis
• Interconnected through cooperation frameworks
  between national gas companies
  

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French gas market in 2002

• Consumption 53 Bcm (2002)
• 47 industrial
• 36 residential
• 17 commercial
• Annual average growth rate in 2002 3
• Small amount of gas for power generation
• Supply Norway 31 , Russia 25 , Algeria 26 ,
  Netherlands 12 , United
  Kingdom 5

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French gas infrastructures in 2002

• Transmission 3 operators Gaz de France,
  Compagnie Française du Méthane (
  CFM ), Gaz du Sud-Ouest ( GSO)
• Distribution Gaz de France, 17 LDCs
• 2 LNG terminals
• Fos
• Montoir
• 15 underground storage facilities (13 Gaz de
  France 2 TOTAL)

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FRANCE RESEAU ET ZONES TARIFAIRES
FRANCE GAS INFRASTRUCTURES
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• - 2 -
• Opening up of the European and French gas markets

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The opening up process

• Launched by the European Commission in the early
  90s
• Objective
• To develop the competition in the gas supply in
  order to improve the economic conditions for
  access to gas
• Means
• Third Party Access to ensure an access to the
  networks on a transparent and non discriminatory
  basis.
• Unbundling of regulated functions and trading
• An independent regulator

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The European Directives

• First Directive ( 1998 )
• Regulated or Negotiated TPA
• Unbundling of accounts for transmission,
  distribution, storage and other activities.
• Progressive eligibility
• Second Directive ( 2003 )
• Regulated TPA
• TPA for storage facilities
• Legal unbundling for transmission and
  distribution
• Independent regulator
• Committee of national regulators

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Agenda for the opening up of the French gas market

• August 2000 1st Directive
• industrial customers gt 25 Mcm/year - 20 of the
  total market
• 150 eligible sites
• January 2003 Gas law
• power generators
• local distribution companies (17)
• industrial customers gt 25 Mcm/year
• 450 eligible sites

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Agenda for the opening up of the French gas market

• August 2003 1st Directive 2nd threshold
• idem plus industrial customers gt 7 Mcm/year
  33 of the total market
• 650 eligible sites
• July 2004 2nd Directive
• all non domestic customers 60 of the total
  market
• 500 000 eligible customers
• July 2007 2nd Directive 2nd threshold
• all customers 100 of the total market

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Regulatory context in France

• A single regulator for both gas and electricity,
  the  Commission de Régulation de lÉnergie 
  which
• is a fully independent authority, currently 96
  people staff and 15 Million Euros annual budget
• approves the rules for the unbundling of accounts
• proposes tariffs for transmission, distribution
  and access to LNG terminals
• is a dispute settlement authority
• can impose sanctions

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• - 3 -
• First results

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The case of France industrial customers having
changed suppliers on 1st September 2003

• 80 sites have negotiated new contracts with their
  historical supplier
• 24 sites have changed supplier, for 3 Bcm/year
  (10 from 01-01-2003)
• 21 of eligible industrial consumption
• 6 of total gas sales in France
• The opening rate stands within the European
  average

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Gas switching estimates for the period
1998-2001(source European Commission
DG-TREN,2002)

• Different transpositions of the European
  Directive from one country to another
• Real opening different from theoretical opening

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• - 4 -
• Re-Organization of Gaz de France group

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Re-Organization of Gaz de France group

• Is a necessity in the framework of the European
  Directives
• Keeps the integrated nature of the Group

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Re-Organization of Gaz de France group

• According to the directive 1
• Unbundling of accounts
•  Chinese walls  between regulated functions (
  transmission, distribution ) and competitive
  activities ( trading).

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Re-Organization of Gaz de France group

• In May 2000, Gaz de France has split its
  regulated activities and its competitive ones
  separated management, separated offices,
  separated information systems.
• Gaz de France has implemented an unbundling of
  its accounts and internal contracts between
  separated activities which rule the financial
  flows between them. These contracts must be
  submitted to the regulator.

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Re-Organization of Gaz de France group

• Moreover the directive 2 makes compulsory
• Legal unbundling of the transmission and
  distribution activities.
• Gaz de France will implement a new subsidiary for
  its transmission activity for the 1st of July
  2004.

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• - 5 -
• Consequences of the new regulation and
  
  lessons to
  be drawn

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Consequences of the new regulation

• Gas to gas competition
• Probably more regulation ( TPA )
• Variety of final price designs
• New ways of supply spot markets, hubs
• Concentration of the major players of the
  European energy industry

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Lessons
to be drawn

• The opening up has to be progressive, with a long
  term view
• to allow the financing of infrastructures,
• to ensure supply security,
• to avoid an excessive concentration of operators
• This is all the more true in a developing system
  as in India