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Operating an interconnector

Operating an interconnector. Sean Waring, Managing Director 26 J une 2014. Life in the middle. Operating an interconnector ? History of Interconnector UK - IUK Service Development What has been its impact? Interconnector’s position in the market Current issues Policy and regulation

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Operating an interconnector

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  1. Operating an interconnector Sean Waring, Managing Director 26 June 2014

  2. Life in the middle • Operating an interconnector? • History of Interconnector UK - IUK • Service Development • What has been its impact? • Interconnector’s position in the market • Current issues • Policy and regulation • Future thoughts

  3. Interconnector

  4. Key Statistics Pipeline Length: 235 km / 145 miles Diameter: 1016 mm / 40 inch First Gas 1st October 1998 Investment £450 million (initial - 1998) £164 million (enhancement 2005) IUK Bacton Terminal Reverse Flow Forward Flow System Capacity (Forward) 20 bcm/year (Reverse) 25.5 bcm/year IUK Commercial Operations Centre IUK Zeebrugge Terminal

  5. 7 Company sponsors BG / Conoco / BP / Elf / Nhydro / Statoil / Distrigas 1992 Study Group formed Identify need for pipeline Full time team established 1993 Commitment achieved Interconnector (UK) Ltd Formed 9 Companies make long term Shipping commitments 1994 Pipeline Offshore Alliance I(UK) / EMC / Brown & Root / BACZEE Onshore Terminals I(UK) / Thermodyn / Kvaerner Alliances Formed 1996 Design & construction 1998 Operations Start History 20 bcm/y Forward 8.5 bcm/y Reverse SILK; EC Enquiry; liquids 25.5 bcm/y Reverse Reverse Capacity Increased 2005/7 Second and Third Package

  6. IUK Shareholders 1994

  7. Current Shareholders Gas bridge is a 50:50 JV between Fluxys and Snam

  8. SILK Seal Interconnector LinK line On-line Information System Capacity & Inventory Trading NTS National Transmission System (UK) FTS Fluxys Transit System (Belgium) Customers and Services 14+ Active Customers (Shippers) 3 Delivery Points (and 2 Time Zones) Bi-directional Transportation Service Storage Service (using Linepack) Zeebrugge Bacton

  9. Interconnector Shippers BG BP GDF Centrica RWE HQ ConocoPhillips RWE UK EDF E.On ENI SpA Total Gazprom Statoil

  10. Historic Flows

  11. Recent Flows

  12. NW Europe Supply Norway Russia LNG

  13. UK/Rest of Europe UK as a swing market Continental Issues Growth of hubs Excess storage capacity Less diversity of supply in east Continuing oil price link Diverse energy policies Storage Carbon pricing Generation and subsidy Regulated approach and regulated interconnection • Excess import capacity • Well connected to Europe • and World markets • Liquid market • Shortage of storage working gas capacity • Sink for excess LNG (up to a • point) LNG push pull • Norwegian flexibility • Reliance on Markets and Merchant interconnection

  14. European Policy and Interconnectors • Centrally planned with emphasis on greater interconnection • Subsidize uneconomic investments • Transfer role of central planner from industry to authorities • International investments not resolved • Third Energy Package • Devil in the detail... and there are lots of details! • One size does not fit all – interconnectors do not have captive demand • Balance of power between Regulators, EC and Member States • Success of the UK market • Market principles, competition, incentives and penalties • Not intervention funded by consumers

  15. Third Energy Package Framework Guidelines & Resulting Network Codes • Challenges • Interdependencies • Timing • Change Process • Drive to short term Third Package • Challenges • National Law • Investment climate • Central planning • Key Principles • Ownership Unbundling • Independent regulators • Completes internal market • Promotes investment • Key Principles • Non-discriminatory access • Common Rules • Market Harmonisation Concern • Prescriptive, one-size fits

  16. Interconnector use in future • Physical Factors • Uncertain balance of Russian, Norwegian and LNG supplies • Relatively small UK storage capacity • Exposure to the global LNG market • Shale and wind intermittency • Regulatory and Market factors • Market’s drive to the short term • Who pays for security of supply when markets have integrated? • Interconnectors are TSOs • Commercial flexibility removed • Result – IUK has an uncertain future

  17. Our Vision -To Reconnect • Combine IUK, Zeebrugge Area and Zeebrugge Beach hub into one cross-border market area • To create a successful future for IUK and its customers • Be the primary link between GB and continental Europe • Maintain Zee as one of the most active trading places in Europe • Offer competitive products to the market • Provide our customers with reliable flexible solutions • Meet our regulatory obligations

  18. Summary • Compelling long term case for IUK • Benefits of market integration, security of supply (and demand) wider benefits and a key element of the internal market • Significant challenges- Merchant model is dead • Interconnectors are TSOs - Network Codes don’t apply to competing infrastructure • Commercial flex and regulatory approach to be developed • IUK’s vision • To offer competitive services to customers and to maintain Zeebrugge as a primary location for trading • IUK will continue to be of value into the long term: market integration, lower wholesale prices, security of supply, electricity-gas interaction

  19. Operating an Interconnector Sean Waring, Managing Director 26 June 2014

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