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Region South-South East 2nd Implementation Group Meeting

SSE Europe gas market: analysis of the Italian Route

Vienna, 24 November 2006

SSE Europe gas market: The Italian Route (1)

Route Algeria-Tunisia-I (SI)-A-(H)-(SK-CZ)

May feed Algerian gas into SSE

Current capacity at route entry (Mazara): ca. 86 Mcm/d

Used only by Italy (24.2 Bcm), Slovenia (0.35 Bcm)

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SSE - The Italian Route: capacity

Capacity is available in the Italian section

Capacity is scant but under reinforcement in Tunisia

The Italian section will have to be enhanced in Southern & Central Italy after 2008

From Northern Italy the route is backhaul, no capacity problems occur in the remaining Italian section, 9 Mcm/d available but not bought

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SSE - The Italian Route: regulation

TPA regulation is modern and fully adequate, however:

UIOLI not needed yet, doubts are raised that if necessary it could be ineffective

Short term capacity not yet available (but forthcoming)

Tariffs are fully regulated and among the lowest in Europe, notably for long distance transportation

Conflict resolution system seen as adequate by most shippers, TSO

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SSE - The Italian Route: upstream conditions

Gas is available but combined effect of Tunisian and Algerian requests entail a long purchase and upstream capacity allocation process

This reduces liquidity and curbs chances of obtaining gas except from Sonatrach

Tunisian transit tariffs are regulated and relatively low

Transmed traffic reported as easier

Availability of downstream sections as backhaul (e.g. TAG) not investigated

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SSE - The Italian Route: other issues

• • •

Shippers report adverse impact of present Italian end price regulation for the residential sector (ca. 20% of the market)

Balancing rules not a problem but do not currently foster the development of the PSV (Virtual hub)

Full balancing market on a national scale may suffers from dominant position of ENI, regional scale more appropriate

Storage not adequate to support the market, barely sufficient for seasonal load management in Italy

Storage penalties seen as high and possibly not cost reflective

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SSE – Scope for harmonization (1)

Lack of regulatory and contractual harmonization seen as a major problem for the development of the regional market

Areas of necessary harmonization include:

Transparency (available and allocated capacity, tariffs, market rules, procedures, forms)

Access rules (requirements, procedure timing, congestion management criteria, contract types and durations

Tariffs (entry-exit points definition, units, tariff structure, RAB calculation, rate of return, annual and short term charges, list of included services)

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SSE – Scope for harmonization (2)

Areas of necessary harmonization include:

Service (units of measurement, thermal year, gas day, nomination process, communication protocols, allocation criteria)

Balancing (time period, charges, deadbands)

Quality (gas quality specifications, quality of service indicators, monitoring)

Harmonization could lead to the establishment of easy temporary connections of pre-defined capacity:

between hubs (virtual inter TSO routes or “catwalks”)

between national or sub-national entry-exit systems (interlinks)

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