ERGEG GRI NWCross Border Gas Transmission

InvestmentVirtual Simulation Specification

and Design

Virtual Simulation Specification and Design

Routes & Size14.35 – 15.20

Adam Cooper (MLCE) &

Mike Young (Centrica)

Stakeholder Involvement and Participation

• The Role of Stakeholders• Virtual Simulation to model a process• If not real, at least realistic• Essential to gain involvement to be credible• Inputs from Shippers / Traders and their

requirement for capacity and view on its valuation

• Representing the users of the asset to be invested in

Shipper/Trader Inputs• Reflecting actual use of asset

– Delivery of gas to a consumer market– Movement of gas between Trading Hubs– Hybrids of these, e.g.

• Gas acquired at Hub for consumer market in another member state• Gas delivered from outside EC for onward transmission to be sold at Hub

• Valuation of capacity based upon:-– Supply-demand gap– Expected price basis (inter-hub)– Expected gas re-sale margin– Availability of competing pipeline/route?

• Major inputs in the simulation design from Shipper/Traders– Routes– Size

Routes - principles

• Based upon key elements of German, Dutch, Belgian and French Hubs and Networks

• Between Trading Hubs

• Between Entry and Exit Points of the wider Trans-National networks

• Suggestions for routes for the Virtual Simulation

Virtual Simulation Case – Suggested Routes

• Route - Option 1– NCG (EGT) to PEG Nord (via Belgium)

– Conventional Route• NCG VTP E.ON

Gastransport• Eynatten Exit E.ON Gastransport• Eynatten P2P Fluxys• Blaregnies P2P Fluxys• Taisnieres Entry GRTgas• PEG Nord VTP GRTgas

Virtual Simulation Case – Suggested Routes

• Route - Option 1a– NCG (EGT) to PEG Nord

(Direct Germany to France)

– Conventional Route• NCG VTP E.ON

Gastransport• Medelheim Exit E.ON Gastransport• ObergailbachEntry GRTgas• PEG Nord VTP GRTgas

Virtual Simulation Case – Suggested Routes

• Route – Option 2– TTF to NCG (EGT)

– Conventional Route• TTF VTP GTS• Oude Exit GTS• Oude Entry E.ON Gastransport • NCG VTP E.ON

Gastransport

Virtual Simulation Case – Suggested Routes

• Route Option 3– TTF to PEG Nord

– Conventional Route• TTF VTP GTS• Zelzate Exit GTS• Zelzate P2P Fluxys• Blaregnies P2P Fluxys• Taisnieres Entry GRTgaz• PEG Nord VTP GRTgaz

Incremental Size - Principles

• For the Virtual Simulation we should assume a dedicated pipeline

• Therefore, size needs to be substantive in order to be realistic for a dedicated pipe

• In “real world” smaller increments may lead to enhancement of existing pipeline (e.g. compression)

Virtual Simulation – Incremental Size, proposals

• Option 1– 100 GWh/d – 3.3 bcm/a (N)– 9 mcm/d (N)

• Option 2– 500 GWh/d– 16.4 bcm/a (N)– 45 mcm/d (N)

Virtual Simulation Specification and Design

Design of Market Test17.00 – 17.30

Adam Cooper (MLCE) &

Mike Young (Centrica)

Existing processes (1)

• Open Season– Indicative (non-binding) bids by Users– Initial “price schedule” based upon indications– Binding commitment by Users– Regulatory Approval – Allocation of incremental capacity across

binding commitments

Existing processes (2)

• Annual Allocation– Establish Capacity Release Methodology which

incorporates Regulatory Approval– Price schedule published, based upon x% to y%

increment above existing capacity (baseline) at Px to Py

– Users “bid” for quantity of capacity at each price step• Binding, but can be amended up to “closure”

– Users bids aggregated and compared with hurdle set to meet investment criteria, i.e. %age of investment project cost (? with NPV applied)

Existing processes - issues

• Pros & Cons of either approach– Open Season

• Ad-hoc process• Lack of transparency, Black Box approach to Allocation• Needs co-ordination between operators

– Annual Allocation• Regular diarised process• Methodology established and available at the outset• Equity of treatment of bidders

• Are there alternatives?

Innovative Case

• How to gauge the desired level of User commitment to the project?

• What level of risk falls upon:-– User– Community (other Consumers)– System Operators

• Incentive related to risk borne

• How is the hurdle for investment set?• Requirement to build, or just to sell?