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Source: ICIS

European Gas Hub Development  Growth of new hubs. EFET Hub Development Group Project. 1. Develop best practice model for creating a successful virtual trading point. Virtual hub in. entry-exit system. -. Physical hub. We are here. Mature, liquid hub. with price. transparency.

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Source: ICIS

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  1. European Gas Hub Development  Growth of new hubs EFET Hub Development Group Project 1. Develop best practice model for creating a successful virtual trading point Virtual hub in entry-exit system - Physical hub We are here Mature, liquid hub with price transparency NordpoolGas Less mature or 2. Benchmark Europe’s existing hubs and recommend improvements less liquid hub, TTF with growing price NBP Gaspool transparency Future hub ZEE Active exchange AVTP trading NCG PEG-N - Strong price link PEG-SW PEG-S - Weaker or PSV expected future price link AOC 3. Work with local EFET Task Forces to apply best practice model at evolving VTPs Source: ICIS

  2. European Gas Hub DevelopmentRoles of hub participants must be clearly defined Hub operator Exchange TSO Operates system Accepts flow/trade nominations from system users Facilitates virtual trading point through entry-exit Provides Title Transfer service at VTP Balances system via balancing market Platform for registration of OTC trades Accepts notice from exchanges of exchange-based trades Provides title transfer and matching services Ensures trade firmness through back-up/-down Runs balancing market Market surveillance and reporting Central counterparty Clearing and credit management Notification of confirmed trades to Hub operator / TSO Licensed / regulated by financial authorities Market surveillance and reporting In some markets, bilateral trading platform is provided by exchange In some markets, hub services are provided by TSO Market participants should not be forced to trade the exchange Arrangements should allow for physical and “pure” (paper) traders Regulator should also consider how Hub operator is regulated if not TSO / Exchange

  3. European Gas Hub DevelopmentDevelopment of services at a trading hub

  4. European Gas Hub DevelopmentInterim results (selection of 21 European hubs)

  5. European Gas Hub DevelopmentInterim results (selection of 21 European hubs) cont’d NRAs & TSO Market

  6. European Gas Hub DevelopmentInitial Conclusions from EFET Guide on the features of a successful VTP EFET Guide: published end of October 2013 (link) • Think about hub design • Good design is necessary but not sufficient to create liquidity; must also improve the underlying conditions that incentivise market participants to trade at the hub • Set up the services in the order they will be used • There is little point in establishing an exchange or a specialised trading contract ahead of clarity on how the market will work • Consider what additional regulation/legislation may be necessary • The role of an independent Hub Operator may not be governed under existing legislation • Define clearly the roles of market participants • In particular, TSOs, Hub Operators and Exchanges – what services are competitive, what are appointed monopolies • Establish governance provisions • These allow the hub to develop in response to changing regulations, market conditions • Consult with interested stakeholders at all key stages

  7. European Gas Hub DevelopmentInitial Conclusions for Phase 2 Benchmarking • European hubs are at various stages of development • NRAs and TSOs to take lead on identified tasks to ensure that the right market conditions are in place • Scoring mechanism identifies deficiencies & missing elements e.g.: • NRAs resolving structural issues earlier in the process • Accessibility to non-physical traders • Credit arrangements non-punitive • Establishment of a consultation mechanism • Establishment of a full entry-exit system (which includes VTP) • Some of the high-scoring elements include: • Clearly defined role of hub operator • PRAs start to report at the hub • Offering of title transfer or imbalance transfer services at the VTP

  8. European Gas Hub DevelopmentInitial Conclusions for Phase 2 Benchmarking • Challenge of regional hubs • Do we need EU wide Guidelines for: • Guidelines for establishing balancing market? • Guidelines for Good Practice for Hub Operators (GGPHO)? • EFET full progress report on hub development at next Madrid Forum • Action on national & regional plans

  9. Thank you for your attention! European Federation of Energy TradersAmstelveenseweg 9981081 JS AmsterdamTel: +31 (0)20 5207970Email: a.avtakhova@efet.org www.efet.org

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