Gas Storage in Europe, recent developments and …

1 Gas Storage in europe , recent developments and outlook to 2035 Geoffroy HureauSecretaryGeneralCEDIGAZE uropean Gas Conference, 27-29 January 2015, Vienna Europeanstoragemarketin 2014 Reviewof 2014 trends Currentchallenges Roleof Storage outlook to 2035 Supply/Demandfactors EstimatedStorage needs Project backlog Conclusion: recoverypost 2025?OutlineEuropean Gas Conference, 27-29 January 2015, ViennaCEDIGAZ International association Around 90 members in 40 countries Reports and Databases Annual report on gas in the world, thematic reports Gas Statistical Database: world reserves, supply, demand, trade .. Gas and LNG contracts database UGS: annual world database New LNG Service Fortnight News Reports on worldwide gas development and unconventional gasWORLD UGS STUDY (June2013)CEDIGAZMore than 50 years of gas market Gas Conference, 27-29 January 2015, ViennaEuropean* GasStorage 2014 Reviewand Challenges* europe 35 European Gas Conference, 27-29 January 2015, ViennaTotal working capacity: 101 bcm 19 new UGS commissioned in the past 4 years (mainly salt cavern) + Extension of existing sites 15 bcmadded (40% in salt cavern, essentially in Germany)European Storage Capacity Jan.

2 2014 Source: CEDIGAZ, Underground Gas Storage Database, 2014 European Gas Conference, 27-29 January 2015, RepublicSpainUnited KingdomNetherlandsHungaryAustriaFranceIt alyGermanyMaximum Working Gas Capacity (bcm)20142010 Source: CentricaStorage Ltd, AnnualReports, CEDIGAZA nnual average SBU price and operating profits Centrica Storage Ltd, 2005-2013 IncreasedcompetitionbetweenstoragesExces sgassupplyleads to decreasing gas price spreads and volatilityToday, the market does not value Storage assetsStorage GlutEuropean Gas Conference, 27-29 January 2015, Vienna4905005105205305405505605705807075 80859095100105 Gas demand (bcm)UGS (bcm)Underground Gas StorageGas demand-11%New capacitiesare stillbeingcommissionedEuropean Gas Conference, 27-29 January 2015, Vienna67%11%7%4%4%3%2%2%GermanySpainHung aryRomaniaNetherlandsPortugalPolandUnite d Kingdom75%25%Salt cavernsDepleted Fields In 2014: Bcm, 7 Fields expansion bcm, additionalsaltcaversin Germany.

3 Atthe beginningof 2014 more than20 bcmof additionalcapacitywasunderconstruction withcompletiondates to bcmof new capacityaddedin 2013 Economic and operational consequences/Security of supplyFinancial: investment in new seasonal Storage ?Source: GSE, AggregatedGasStorage InventoryEvolution of European inventories (EU 28) vs. Working gas capacityLow Utilization of Storage ,8%European Gas Conference, 27-29 January 2015, Vienna94,3%Competitionfromothersources of flexibility?European Gas Conference, 27-29 January 2015, Vienna3439404048575355698889685201020304 05060708090100 LNG Imports (bcm)X 3051015202530352010201120122013 LNG Seasonal Variations (bcm)summer / T2-T3winter / T4-T1 (n+1) Growthof LNG imports Greatermarketintegration(interconnectors )Seasonalflexibilityin EuropeSeasonalvariations in demand/supply(summer2012 / winter2012-2013)Sources: IEA, ENTSOG, CEDIGAZE uropean Gas Conference, 27-29 January 2015, ViennaSecurity of supplyUGS isthe mostreactiveto suddendemandvariations duringcold spellsEuropeanwintersupplyprofile Source.

4 ENTSOGE uropean Gas Conference, 27-29 January 2015, Vienna2012/20132013/2014 OctNovDecJanFebMarCase study winter2012/2013 in the UKTotal SupplyUGSIUKLNGUGS levelSource: National GridWinter Consultation 2013/2014 Winter outlook 2013/2014 WellfunctioningEuropeanmarket LNG supplyishighlyunpredictableand linkedto global markets Main contribution of UK and continental storageEuropean Gas Conference, 27-29 January 2015, ViennaEuropeanGasStorage outlook to 2035 European Gas Conference, 27-29 January 2015, ViennaFuture European Gas Demand and SupplyEuropean Gas Conference, 27-29 January 2015, Vienna0100200300400500600201320202035 LNGP ipeline othersPipeline RussiaNorwayDomestic production ( )

5 34%22%13%21%23%16%512532585 BcmExternal dependenceWithoutNorway47%68%87%71%2013- 2035 Gas demand+ 14%Domesticproduction -37%(-54% excl. Norway)Imports +73%(+46% excl. Norway)+ + Decreasein domesticproduction (evenwithshale gas) Decreasein production swings (Groningen) A significantincreasein gasimports + 73% (+46% withoutNorway) in 2035 Security of supplyissues New long-distance pipelines builtSupply and Demand FactorsA Surge in Gas Imports & dependenceEuropean Gas Conference, 27-29 January 2015, Vienna45%50%55%60%65%70%75%1502002503003 50400450201020152020202520302035 ImportProductionDependenceMore seasonalUGS neededfor operationaland strategicpurposesEuropeannaturalgasdeman dprospects 0204060801001201402013202020350501001502 00250 Growth 2020-2035 Growth 2013-20202013 The expectedgrowthin the residential-commercial and industrialsectorswillmainlycome fromTurkeyand SouthernEurope.

6 Turkeyisexpectedto becomethe thirdlargestgasmarketin 2035. Potentialfor significantdevelopmentof highly-flexible gas-firedpower plants after2020 to back-up renewablepowerUnit: BcmEU Gas demand in the Power sector020406080100120140160180bcmGermany NetherlandsUnited KingdomSpainItalyFranceBelgiumOthersGas demand by the power sector has decreased by 51 bcmbetween 2010&2013 The equivalentof the total French Gas Conference, 27-29 January 2015, ViennaClosure of aging coal power capacity0510201320031993198319731963 Lignite (64 GW)051015201320031993198319731963 Hard coal(128 GW)GW40% of capacityismore than40 yearsoldDate of commissioning of EU coal power capacity Source.

7 EnerdataEuropean Gas Conference, 27-29 January 2015, ViennaAir emissions regulation (LCPD/IED) Large Combustion Plants Directive limits SOxand NOxemissions Opt in (FGD investment) or Opt out and close by end 2015 15 GW of old coal plants closed by end 2015 at the latest, mainlyin UK and France(somealreadyclosed) Industrial Emissions Directive replaces LCPD on 1 January 2016 Further tightens limits on SOxand NOxemissions Opt in (SCR investment) or Opt out and closure by 2023 Some flexibity(Transitional National Plans) Additional closure of old coal-fired plants: 50 to 55 GW, mainlyin the United Kingdom, Germany, Spain, PolandTheseclosuresamountto almosta thirdof currentEU coalcapacityEuropean Gas Conference, 27-29 January 2015, ViennaEU-ETS reformCan the phoenix rise from the ashes?

8 Structural reform of the EU ETS 2030 Climate and Energy Framework Emissions reduction by 40% by 2030 Fast-track EUAs backloading(Feb 2014) market stability reserveDifferent possible futuresSource: Climate Economics Chaire, January 2014 European Gas Conference, 27-29 January 2015, Vienna Markethubs/Gastrading needUGS (cf. US development ) Flexible UGS close to markethubs market -basedpricing Lessflexibilityin gasexport contracts More flexibility/UGS needed More network balancingneeds Greaterinterconnectivityof the Europeannetwork LessUGS and relianceon neighbouringflexibility/UGS ? But limitedto short-distance neighbouringcountries More cross-border UGS built(ex: Epe) A European storagemarketMarketLiberalizationReinfor cedcommercial roleof UGSE uropean Gas Conference, 27-29 January 2015, ViennaA changing landscape: new players are entering the Storage business for operational and strategic reasonsSource: CEDIGAZ, Underground Gas Storage in the World, 2013 European Gas Storage Players Working Gas Capacity, 2013 market LiberalizationNew entrants in UGST akesintoaccountrecentacquisitions and direct sharesownedin foreignstorage/utility Gas Conference, 27-29 January 2015, ViennaSource.

9 CEDIGAZ, November 2014An additional need of around 45 bcmby 2035 But overcapacity is likely to last until 2025 Estimates of European UGS Needs by 2035 European Gas Conference, 27-29 January 2015, Vienna8182889910712013414702040608010012 014016020002005201020132020202520302035 Yet to be FIDedUnder constructionOperationalWGC22 bcmUnder Construction54 bcmatvariousstages of planningTotal identified projects (at beg. of 2014): 77 bcm(highly competitive market )Under construction: 22 bcm(with a completion date up to 2025)Source: CEDIGAZ, Underground Gas Storage DatabaseEurope: Planned Working Gas Capacities European Gas Conference, 27-29 January 2015, Vienna02,0004,0006,0008,00010,00012,000 Bosnia & RepublicAlbaniaSlovakiaFranceBulgariaSpa inPolandPortugalCroatiaSerbiaAustriaNeth erlandsLatviaTurkeyItalyGermanyUnited KingdommmcmUnder constructionPlannedConclusion.

10 Possible recovery post 2025 Over capacityexpecteduntil2025 Supply& demandevolution, marketliberalizationand environmentalconstraintson coalwilldrive a new periodof growthfor UGS CedigazestimatesthatEuropeanUGS capacitywillincreaseby around45 bcmby 2035 77 bcmof UGS projects Of which22 bcmunderconstruction A majorityof salt-cavernprojects(marketliberalization ) Not somuchnew seasonalstorage(securityof supply?) Not all plannedstoragewillbebuilt Projectsundercompetitionfor the same(regional) market The situation isquitecontrastedbetweenNW europe and South-SoutheastEurope (and UK) Challenges: investmentand securityof supplyEuropean Gas Conference, 27-29 January 2015, ViennaThankyoufor Gas Conference, 27-29 January 2015, Vienna