Eurasian natural Gas Infrastructure Athens, June 22-23 2016 Vincenzo Cioffo

1. The effect of TAP pipeline for the
Balkans, Turkey and Italian gas markets
Vincenzo Cioffo
Italian Regulatory Authority for Electricity Gas and Water͌
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
1
͌The speaker is the only responsible for the expressed opinions which do not
bind the Italian Regulatory Authority for Electricity Gas and Water

2. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
Medium Term Gas Market
Global gas demand growth slows despite much lower gas prices
Following a stagnation in 2014, global gas demand is estimated to have
returned to growth in 2015. It is difficult for gas to compete in a world of very
cheap coal, falling costs and continued policy support for renewables
Fierce competition develops in Europe
Production growth from Russia and the Caspian region – the world’s largest
exporting region – slows to half the level recorded between 2009 and 2015.
Abundant supplies of liquefied natural gas (LNG) lead to strong competition
among producers. For Gazprom to achieve its stated strategy of maintaining
market share in Europe, it will need to adopt a more competitive pricing
mechanism than in the past.
New investments grind to a halt
Gas supply risks remain substantial. As a result, concerns about gas supply
security could reappear on the horizon before the end of our forecast period.
2

3. Natural gas consumption in
Italy by sector G(m3)
25,0 26,1 25,1 26,1 25,4
28,7 29,7 32,2 30,2 28,2 30,2 31,6 33,9
30,8 31,0 31,1
25,7
28,7
18,7
19,4 20,3 20,3 20,3
20,7 21,0
20,6
19,9
19,2 17,6 14,5
15,7
15,5 15,0 14,8
14,5
14,0
16,5
20,1 22,8 22,1 22,6
25,7
27,1
30,6
31,5
34,3 33,9
29,0
30,1
28,2
25,3
20,6
17,9
20,9
1,6
1,7
1,7 1,8 1,7
1,7
1,8
1,9
1,9 1,7 1,7
1,6
1,7
1,6
1,6
1,7
1,8
2,0
0
10
20
30
40
50
60
70
80
90
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Residential and Tertiary Industry Thermoelectric Other Sector
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
3

4. Gas demand in Italy
90% of the gross domestic consumption is satisfied by imports while
the remaining 10% by domestic production.
M(m3); estimates based on gas entry point
6.777 6.513 2.666 6.530 24.036 4.387 4.848
7.244 7.107
2.621
5.074
27.589
5.893 5.673
0
5.000
10.000
15.000
20.000
25.000
30.000
Algeria Lybia Norway The netherlands Russia Qatar Others
2014 2015
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
4

5. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
Estimated border prices of
gas imported
5

6. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
Principles of gas
transmission tariff
6

7. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
7
 Azerbaijan is an important gas supplier for Turkey.
 As soon as the Transanatolian Pipeline (TANAP) is
completed Turkey will start to buy an extra 6 bcm from the
second phase of the Shah Deniz field.
 An additional 10 bcm from the Shah Deniz field is allocated
to the European gas market.
 Although it is difficult to conclude new long-term contracts
with European utilities, the Southern Gas Corridor will go
forward.
Azeri gas in Turkey

8. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
8
 The potential of the Southern Gas Corridor is not limited to
Azeri gas, as it may also transport new supplies from the
Eastern Mediterranean, Turkmenistan and Iraq in the
future.
 The diversity of potential suppliers and the possibility to
expand volumes also have positive implications for
Turkey’s supply security.
 Last but not least, the end of sanctions on Iran have made
trade with this country easier especially regarding energy.
Turkey’s supply security

9. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
Final Joint Opinion
The project
9

10. Final Joint Opinion
Results evaluation
 Requests for transportation of Shah Deniz II gas have a range
between a minimum of around 32.1 and a maximum of 42.6
bcm/year.
 It is possible to say that the demand from sources other than
Shah Deniz have a maximum of 14.3 bcm/year.
 not only the sponsors of TAP, but also the market, considers TAP
especially as a vehicle for the transportation of the Shah Deniz II
gas to Italy, which is the main destination market of TAP.
 there's a demand for forward and reverse flow to Albania and
Greece as well.
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
10

11. Final Joint Opinion
Contribution of TAP to the
Southern-East Europe
 link between the Italian gas market and the South-Eastern Europe
gas market. TAP will strongly contribute to market integration in
South Eastern Europe.
 reverse the traditional flow north-south and this allows export of
gas from Italy arriving also from the Caspian region to the hub of
northern Europe.
 crucial contribution to price convergence in the South Eastern
Europe area.
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
11

12. Final Joint Opinion
TAP Tariffs
 TAP AG proposes that all shippers pay a uniform TAP Tariff, irrespective
of they use forward or reverse capacity products.
 the fee structure for forward flow gas transportation through the Trans
Adriatic Pipeline follows an entry-exit charge system. The calculated
Target Revenue for any given period is broken down to an entry fee and
an exit fee component under a 50%-50% split.
 The entry fee is allocated in proportion to all volumes entering the
pipeline, unrelated to the distances for which such volumes will be
shipped. The exit fee is allocated to volumes exiting the pipeline at
various exit points, the respective allocations being done in proportion to
volumes and travelled distance.
 As far as Reverse Capacity is concerned, especially for virtual reverse
flow, as there are no additional costs, Authorities believe that market
procedures should start at a very low reserve price, for example 5% of
the TAP Tariff.
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
12

13.  TAP will be connected to
the Italian natural gas grid
to provide firm capacity at
the Italian virtual trading
point (PSV), from which all
Italian gas exit points can
be reached
 TAP can reach Austria via
TAG pipeline
 TAP can reach Germany
and France via Transitgas
TAP can connect Caspian gas
to multiple European markets
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
13

14. Connection to Bulgaria
TAP can provide Bulgaria with a new
source of gas through existing and
planned infrastructure.
TAP can provide Bulgaria with a new source of gas through
existing and planned infrastructure.
Reverse flow on Kula/Sidirokastro
Interconnection point exporting Russian
gas from Bulgaria into Greece.
IGB – is designed to connect Greece
(Komotini) to Bulgaria (Stara Zagora).
MoU with IGB signed in January 2014.
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
14

15. entsog Gas Network
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
15
Europe’s current gas system is largely resilient to a wide range of extreme
scenarios, with the exception of SEE region

16. Conclusions
Balkans: to connect “energy islands” and to provide price
convergence
Turkey: more security of supply and more Asian hub
Italy: more diversification and more European hub
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
16

17. Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
 AEEGSI Annual Report on the State of Services and on Regulatory Activities
2016
 AEEGSI/RAE/ERE Joint Opinion of the Energy Regulators on TAP AG’s
Exemption Application July 2013
 AIE Medium Term Gas Market Report 2016
 ECRB Market Monitoring Report Electricity and Gas Markets in the Energy
Community April 2016
 ENTSOG TYNDP 2017 Scenarios
References
17

18. THANK YOU !
GRI SSE – pilot project XII
Eurasian Natural Gas Infrastructure
June 22 - 23 Athens
18