Schemes for fostering new storage investments: the Spanish case Rocío Prieto CNE - Spain Brussels, 24th May 2007

2 1.The Spanish natural gas sector 2.Present and future infrastructures 3.General underground storage regime 4.Retribution system for underground storage Index

3  No national gas production  Long distance from gas fields  High dependence on LNG imports GAS SUPPLY  Demand soaring during the last decade  Mild weather conditions  Big increase in gas demand for new CCGT GAS DEMAND The Spanish natural gas sector Main characteristics STORAGE NEEDS

4 Source: Sedigas – Enagas Market structure in 2006 Total demand evolution The Spanish natural gas sector Main characteristics

5 Source: CNE Since 2000, growing gas demand is supplied by newcomers Newcomers !! Incumbent (<48%) The Spanish natural gas sector Main characteristics

6 Source: CNE lIncumbent market share has decreased down to 47% l 3 Newcomers with market shares over 5%. 2 of them over 10%. Liberalized market 85,8% Regulated market 14,2% Natural gas consumption in TWh The Spanish natural gas sector Market liberalization

7 1.The Spanish natural gas sector 2.Present and future infrastructures 3.General underground storage regime 4.Retribution system for underground storage Index

Oviedo Santander Palencia Valladolid Burgos A Coruña Zamora León Pontevedra Ourense Salamanca Bilbao Segovia Madrid Lugo Zaragoza Soria Cuenca Jaén PLANTA DE HUELVA POSEIDON MARISMAS PALANCARES Granada Málaga Córdoba Cádiz Huelva Sevilla Algeciras Jerez Arcos Estepona Motril Puente Genil 48” Badajoz Cáceres Almendralejo Toledo Talavera PLANTA DE BILBAO AASS GAVIOTA C.I. MARRUECOS Pamplona S. Sebastián Vitoria Lumbier Huesca Lérida Tarragona Barcelona Castellón Valencia Alicante Murcia Ciudad Real Cartagena Lorca Caudete Albacete PLANTA DE CARTAGENA PLANTA DE BARCELONA AASS SERRABLO 32” 28” 20” 26” Villar de Arnedo Haro Aranda Algete Guadalajara Getafe Tarancón Alcalá Puertollano 26” 16” 26” 20” 30” 20” 12” 16” Ponferrada 12” 8” 6” 20” 26” 12” 30” 24” 30” Mérida Plasencia Linares Aguilar de la F. Osuna 16” 10” 12” 10” 8” Monzón Tivissa Bañeras Manresa Igualada 12” 10” Montmeló Mataró Gerona 10” Larrau Sariñena Reus 16” 20” 12” 16” Alfarrás Subirats 8” 14” Ferrol Villalba Vigo Curtis Santiago Caldas de Reis Puentecesures Tuy Astorga Villamañan Benavente Avilés Gijón Luarca Langreo Reinosa Castro U. Briviesca Miranda Arrigorriaga Durango Vergara Irún Lerma Aguilar de Campoo Toro Tordesillas Peñafiel Estella Viana Tudela Lesaka Sangüesa 8” 4” 6” 12” 10” Castelnou Alcañiz Villanueva G. Zuera Torrijos Alameda de la Sagra Los Yébenes Tortosa Alcora 8” Borriol 12” Villafames Chilches Segorbe Nules Sagunto 4” 16” 12” 10” 8” 20” 10” 8” 4” 10” 16” 12” 8” 12” 14” 10” Santo- venia 16/10/8” Paterna Puzol Lliria Cheste 6” Carlet Xixona Agullent Elche 10” 20” 16” Logroño 4” 6” Lisboa Sines Guarda Viseu Braga Oporto Portalegre Campomaior Leiria PLANTA DE SINES 26” 20” 26” 12” Teruel 26” 20” Villamayor 12” C.I. FRANCIA Almería Olmedo Medina del Campo 12” 20” 28” 20” 28” 32” 16 ” 12” 24” 20” 16” Mouro 12” Ávila PLANTA DE SAGUNTO PLANTA DE MUGARDOS AASS DE CARRIZO Mijas Viches 6” Rivas 6” Almazán Fuentes 12” Laredo Santurze Treto Villalba 16” ” 32” 30” 12” Turégano ” 10” Caspe Andorra Santa Cruz de Mudela Alcázar de San Juan Quintanar de la Orden Aranjuez Totana 150 Castor 26”-36” <43 C.I. IRÚN Cuellar Peñaranda de Bracamonte La Robla Guardo Tamarite de Litera Agreda Calatayud 20” 10” Chinchilla Planta de regasificación (en miles de m 3 de gnl) Planta de regasificación (construcción) Capacidad de regasificación (miles de 3 (n)/h) Capacidad de regasificación (en construcción) Yacimiento Conexión internacional ( en miles m 3 (n)/h ) Almacenamiento subterráneo ( en Mm 3 (n) gas) Almacenamiento subterráneo (en proyecto) Capacidad de extracción (en miles m 3 (n)/h de gas) Estación de compresión Estación de compresión (en construcción) Gasoducto de transporte (autorizados o en construcción) Fuente- Álamo 150 Gas natural network

9 Source: CNE New storage capacityForeseen starting date Marismas (Fase I)2005 Marismas (Fase II)2009 Poseidón2009 Gaviota2009 Yela2009 Castor2009 Reus2011 Existing storage infrastructures Future storage infrastructures Present and future infraestructures Storage capacity. Existing and planned Underground Storages Storage Capacity Mm3 (n) Intake / Offtake Capacity Mm3/d Cushion GasUseful GasGas TotalIntakeOfftake Serrablo (Aurín+Jaca) Gaviota Total

10 1.The Spanish natural gas sector 2.Present and future infrastructures 3.General underground storage regime 4.Retribution system for underground storage Index

11 Main legislation concerning security of supply Stocks: 35 days of its firm sales or consumption Diversification: 60% of the supplies coming from the main country that supplies the Spanish Gas Market. Agents obliged to comply: companies that introduce gas into the system to supply final customers Companies selling gas, need to book underground storage capacity to comply with the regulation regarding strategic reserves (35 days) GENERAL UNDERGROUND STORAGE REGIME Need of underground storage

12  Central planning made by the Government for strategic storage, among others  Building underground storage requires an Administrative authorization GENERAL UNDERGROUND STORAGE REGIME Main characteristics  Transparent and non discriminatory conditions  Regulated and cost reflective TPA tariffs  General capacity allocation mechanism: “First come, first serve”. “Pro rata” for strategic storage.  Mechanism to avoid congestion: UIOLI  TPA tariffs revised every year Infrastructure development TPA Access

13  Based on the following principles: Ensuring recovery of investments Ensuring a reasonable profit of financial resources Promoting effective management and improving productivity  Investment recovering guarantee, once the storage is recognised by the Ministry  TPA Tariffs calculated each year to collect retribution to infrastructure owners (investors that have built infrastructures included in the central planning) Economic regime GENERAL UNDERGROUND STORAGE REGIME Main characteristics

14 1.The Spanish natural gas sector 2.Present and future infrastructures 3.General underground storage regime 4.Retribution system for underground storage Index

15 ANNUAL COST RECOVERY FOR INFRASTRUCTURE (direct allocation) Annual cost recovery for investment Annual operating and maintenance cost RETRIBUTION SYSTEM FOR UNDERGROUND STORAGE Orden ITC/3995/2006

16 Annual cost recovery for investment RETRIBUTION SYSTEM FOR UNDERGROUND STORAGE Order ITC/3995/2006 FINANCIAL RETRIBUTIONDEPRECIATION Investment amount working life Remaining investment amount x retribution rate Investment amount settled by Working life (years) Underground storage facilities audit10 Cushion gas auction20 Retribution rate = National Bank Bonus Rate (10y) + 3,5% Retribution rate keeps steady during the working life of infrastructure

17 Annual operating and maintenance cost RETRIBUTION SYSTEM FOR UNDERGROUND STORAGE Order ITC/3995/2006 VARIABLE COSTSPERMANENT COST Defined every year for each facility Intake unit cost x total annual intake gas volume + offtake unit cost x total annual offtake gas volume Intake and offtake unit costs defined every year per each facility GAS CONSUMPTION DURING OPERATION Settled by auction Permanent and variable unit cost updated every year taking into account consumtion, industrial products and electricity increase indexes

18 RETRIBUTION SYSTEM FOR UNDERGROUND STORAGE Order ITC/3995/2006  For underground facilities running before this new economic regime: recognized value of investments in research and facilities, retribution rate and end of working life is settled in the Order  In order to boost investigation and exploration of future underground storages, the retribution system recognizes investment in these activities whenever required in the following 5 years after facility starts running. The recovery is settled by audit and can rise up to 50% of recognized investment in the facility.  Exceptionally, it is possible to include in remunerative system singular investments.  Investment in modifications on facilities will be recognized when they suppose an increase of intake/offtake capacity or in the operative volume Main points to underline

19 RETRIBUTION SYSTEM FOR UNDERGROUND STORAGE Orden ITC/3995/2006  Once the working life is over, if the infrastructure is still running, the annual cost recovery comes to 50% of the annual investment cost recovery in the last year of working life  At the end of its working life, the part of cushion gas that can be mechanically withdrawed will be to the system’s advantage. Main points to underline

20 Schemes for fostering new storage investments: the Spanish case Thanks for your attention! Rocío Prieto CNE – Spain