Gas quality conversion: KONNi Gas ruling, new conversion fee/neutrality charge

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1 Gas quality conversion: KONNi Gas ruling, new conversion fee/neutrality charge Lea Nieschmidt Berlin, 19 September 2017

2 Agenda 1. Amended KONNi Gas ruling 2. Quantity trends under the conversion mechanism 3. Determination of conversion fee 4. Determination of conversion neutrality charge 19 September

3 Amended KONNi Gas ruling MAMs file application for amendment of KONNi Gas Notification No. 1 on implementation of KONNi Gas: fee cap is extended by 6 months Second hearing of associations by BNetzA MAMs submit response to 2 nd consultation draft of KONNi Gas 26/01/16 04/02/16 06/04/16 22/04/16 09/05/16 12/07/16 27/07/16 24/08/16 21/12/16 MAMs announce intention to extend validity period for last fee cap beyond 01/10/16 BNetzA holds hearing for associations FNB Gas e.v. and MAMs submit joint response to consultation on amendment of KONNi Gas Second consultation on amendment of KONNi Gas. Two alternatives are proposed (ex-post fee vs. ex-ante fee) Final decision KONNi Gas 2.0 is published 19 September

4 Amended KONNi Gas ruling Conversion fee (ex-ante fee) Influence market participants behaviour instead of cost recovery Fee is to provide an incentive for cross-quality gas trading MAM not to become single buyer of low CV gas H-to-L conversion: fee capped at 0.45 EUR/MWh L-to-H conversion: no fee to be charged Three mandatory indicators for determination set out by BNetzA Additional indicators shall be developed Conversion neutrality charge Tool for cost recovery Ensures that MAM has liquidity buffer 19 September

5 Amended KONNi Gas ruling Information to be published by MAM Conversion fee and conversion neutrality charge Monthly balances of conversion neutrality account Quantity and price information on MAM s physical conversion measures, to be published separately for commercial and technical conversion activities Virtual conversion quantities for each direction of conversion Information is published on the GASPOOL website at 19 September

6 Amended KONNi Gas ruling Actual conversion activities MAM has obligation to choose most efficient measure available Priority: Use of technical conversion facilities already included in network operators transportation tariffs has In addition, MAM may based on cost considerations decide to: use third-party technical conversion facilities transport high CV gas to NL whilst simultaneously importing low CV gas from NL ( gas imports and exports carried out for conversion purposes ) carry out commercial conversion measures by taking balancing actions 19 September

7 Agenda 1. Amended KONNi Gas ruling 2. Quantity trends under the conversion mechanism 3. Determination of conversion fee 4. Determination of conversion neutrality charge 19 September

8 Quantity trends under the conversion mechanism Virtual conversion quantities (MWh) 1, , ,50 0 0, , , , , ,50 Virtual conversion H to L (MWh) Conversion fee until 30/09/2016 (EUR/MWh) Conversion fee L to H (EUR/MWh) Virtual conversion L to H (MWh) Conversion fee H to L (EUR/MWh) L-to-H virtual conversion quantities jumped to 4.8 TWh, up by a factor of 19 on last winter H-to-L virtual conversion quantities jumped to 1.9 TWh, up by a factor of 2.5 on last winter 19 September

9 Quantity trends under the conversion mechanism Technical conversion measures, costs included in transportation tariffs Quantity swaps Gasunie Deutschland can convert quantities via cross-border interconnection point at Oude Statenzijl To do so, Gasunie Deutschland re-schedules its flows so as to leave certain quantities of low CV gas in NL and imports same quantity of high CV gas instead Blending TSOs can use metering and control sections on their pipeline systems for blending This means that TSOs combine gas flows in two different gas qualities into a single stream of gas 19 September

10 Quantity trends under the conversion mechanism Technical conversion measures (costs included in transportation tariffs) Technische Technical conversion Konvertierung H toh->l L Technische Technical conversion Konvertierung L tol->h H Technical conversion measures including quantity swaps and blending 19 September

11 Agenda 1. Amended KONNi Gas ruling 2. Quantity trends under the conversion mechanism 3. Determination of conversion fee 4. Determination of conversion neutrality charge 19 September

12 Determination of conversion fee Indicator a b c d e Description Virtual conversion quantities H-to-L relative to total low CV gas demand Commercial conversion quantities H-to-L relative to total low CV balancing energy quantities Commercial conversion quantities H-to-L relative to total low CV gas demand Virtual conversion quantities L-to-H relative to total high CV gas demand Virtual conversion quantities L-to-H relative to total low CV gas demand f Mean {indicator a; indicator d; indicator e} g Notional conversion fee 19 September

13 Determination of conversion fee New indicator g developed to reflect notional conversion fee Suppliers providing gas to end users of low CV gas may either actually deliver low CV gas (esp. from NL) or procure high CV gas instead and then use virtual conversion service Price spread between low CV gas sourced at the TTF plus transportation markup and high CV gas plus conversion fee Notional conversion fee reflects amount at which procurement prices for these two procurement options intersect Notional conversion fee = TTF price - GP price + transportation costs + conversion neutrality charge - VTP fee 19 September

14 Determination of conversion fee Indicator g: Notional conversion fee 2,00 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 Indicator g: Notional conversion fee (EUR/MWh) Actual conversion fee H to L (EUR/MWh) Actual conversion fee until 30/09/2016 (EUR/MWh) Actual conversion fee L to H (EUR/MWh) Since Oct 2015: Notional conversion fee > Actual conversion fee BGMs incur lower costs if they convert gas rather than delivering right type of gas Esp. in Jan and Feb 2017: Notional conversion fee > Actual conversion fee At the same time, large-scale H-to-L virtual conversion activities Estimated mean notional conversion fee GY 2017/18: 0.72 EUR/MWh Conversion fee set at amount of fee cap: 0.45 EUR/MWh 19 September

15 Determination of conversion fee Analysis of indicators a, b, c and f Indicators b and c measure the extent to which MAM is single buyer of low CV gas Conversion fee provides sufficient incentives for BGMs to deliver low CV gas Indicators a and f measure the extent to which market participants engage in cross-quality gas trading Have gone up significantly Virtual conversion activities are likely to increase further in future Based on our projections, conversion fee of 0.45 EUR/MWh can ensure that KONNi Gas targets are met, namely to provide cross-quality energy balancing service whilst providing incentive for BGMs to deliver the gas type needed 19 September

16 Agenda 1. Amended KONNi Gas ruling 2. Quantity trends under the conversion mechanism 3. Determination of conversion fee 4. Determination of conversion neutrality charge 19 September

17 Determination of conversion neutrality charge Calculation of liquidity buffer Liquidity buffer is to be set at a level that will allow GASPOOL to cope for certain period during winter season without running into liquidity problems even if we should temporarily become single buyer of low CV gas Specifically, buffer is determined so that GASPOOL can provide 90% of low CV gas demand via conversion measures over a 4-week winter period Based on conversion price of 2.42 EUR/MWh (corresponds to the mean conversion price in the NCG market area in February 2016) In order to be able to manage these costs a liquidity buffer of EUR 30 million is required by 1 February September

18 Determination of conversion neutrality charge Calculation method Liquidity buffer required by 01/02/2019 EUR 30,000,000 Liquidity buffer 01/10/2017 EUR 11,870,000 Conversion fee revenues between 01/10/2017 and 01/02/2019 Conversion costs between 01/10/2017 and 01/02/2019 Required conversion neutrality charge revenues in order to achieve targeted liquidity buffer Physical inputs between 01/10/2017 and 01/02/2019 Required conversion neutrality charge EUR 3,490,000 EUR 8,230,000 EUR 22,870,000 1,352,000 GWh EUR/MWh 19 September

19 Thank you for your attention. Any questions? 19 September

20 Back Up 19 September

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26 Determination of conversion neutrality charge Evolution of liquidity buffer 01/02/2019: EUR 30m /02/2018: EUR 16m Conversion neutrality charge EUR/MWh Conversion neutrality charge EUR/MWh liquidity buffer 19 September

Report on the system balancing actions and related procurement activities in the GASPOOL market area in the gas year 2015/2016

Report on the system balancing actions and related procurement activities in the GASPOOL market area in the gas year 2015/2016 Current as at: 5 December 2016 Table of contents Introduction... 6 Internal