General Overview of Spanish LNG Sector

Rocío Prieto Subdirectora de Gas Natural

27th November 2018 INDEX I. GENERAL OVERVIEW II. LNG in Spain today • Wholesale prices and LNG • Utilization of the terminals • Regulation of access • OTC market • Remuneration and tariffs • Current problems III. Future LNG model in Spain

November 2018 2 General Overview

Gas Indicators Evolution 1998 2018 Demand 13 bcm 30 bcm Customers 3,5 mill. 7,8 mill. Ratio in primary energy 11% 20% Number of shippers Almost only one More than 70 Transmission Network size 5.000 km More than 12.000 km Distribution Network size 24.000 km More than 60.000 km Regasification terminals 3 7

Underground Storage capacity 22.864 GWh 32.057 GWh (working gas)

Supply diversification 5 different origins 13 different origins

Spanish gas sector developed initially and expanded geographically because of LNG availability

November 2018 3 PLANTA DE MUGARDOS PLANTA DEL MUSEL PLANTA DE BILBAO

150 150 413 A.S. GAVIOTA 800 150 150 200 C.I. IRÚN 238 (ampliación 2015) CabanasAs Pontes Luarca 150 150 150 20” Avilés 800 16” Gijón VIP PIRINEOS 8” 20” 1.546 A Coruña 26” 12” Vegadeo Llanera Santander Bilbao Sabón 14” 20” S. Sebastián 12” Bermeo Irún Guitiriz Oviedo Treto 16” C.I. LARRAU Abegondo Langreo Villapresente Lemona Arrigorriaga Bergara (ampliación 2013) 20” 20” EUSKADOUR Santiago Larrau Lugo La Robla Reinosa 26” Pamplona Guardo 8” 16” 26” 283 16” Vitoria 14” Ponferrada NAVARRA Andorra la Vella Miranda 30” 12” 8” Viella 10” 820 La Jonquera Pontevedra Astorga León Logroño Sangüesa A.S. SERRABLO Ourense 10” 26” 26” 26” Vigo 30” Figueres 16” Villamañan HARO Burgos 10” Castejón Ejea 6” Barbastro Valença do Minho 36” C.I. TUY Palencia Ezcaray Viura 20” 6” Solsona Villamayor Huesca 12” Girona Benavente 20” 12” VILLAR DE 20” Tamarite 20” 12” Monzón 20” ARNEDO 8” Manresa 12” Soria 12” Alfarrás Viana do Castelo Aranda 26” 10” 10” CORESES 20” Valladolid 10” 10” Igualada 12” Agreda Zaragoza Montmeló Braga 12” Martorell Boecillo 6” 12” Tordesillas 20” 10” Cuéllar8” 20” Lleida Subirats Besós Zamora 12” Almazán 10” 4” 20” 28” Medina del Olmedo 26” Barcelona 8” Turégano Santo Tomé Castelnou 36” 26” Campo Azaila Caspe Oporto Arévalo 12” Calatayud 10” Reus Gaia 30” TIVISSA BANYERES 1.950 Collado Hermoso 8” Ariño 24” Estarreja Viseu 12” 8” Segovia 20” 625 26”Tarragona 150 150 150 150 Aveiro Salamanca Calamocha Alcañiz 26” 80 80 Mangualde Otero de Herreros ALGETE 26” A.S. YELA Tortosa 40” 20” Guarda 1.050 PLANTA DE BARCELONA Peñaranda 16” 12” Cantanhede 12” Guadalajara Villalba 12” 26” A.S. CARRIZO Ávila Alcalá Vinarós Montemor 12” Madrid 1.042 Getafe Arganda 30” Teruel 30” Lares VIP IBÉRICO 20” Alcora 300 26” 1.300 A.S. CASTOR Porto Coelheiros Cuenca 16” 12” Onda Castellón 10” Son Reus Plasencia 10” 20” 16” Bidoeira Aranjuez Zarza de Tajo 14” 171 Talavera 8” Segorbe Palma Sagunto Toledo 26” PATERNA 28” 28” Cáceres 32” 1.000 150 150 150 150 Pego Torres Vedras ALCÁZAR DE Cheste Cartaxo Portalegre Miajadas 8” SAN JUAN 6” Valencia PLANTA DE SAGUNTO Villarrobledo 20” Almussafes CARREGADO Campomaior Villanueva de la Serena 10” Monforte Ciudad Real Albacete 24” Ibiza Mérida MONTESA 20” Lisboa 36” 28” ALMODÓVAR DENIA Palmela 16” 24” CHINCHILLA Caudete Agullent ALMENDRALEJO 30” 26” Puertollano 12” Setúbal C.I. BADAJOZ 8” 6” Altea 150 32” 32” Banyeres Villafranca16” 32” CREVILLENT Santa Cruz Jerez de los Caballeros Alicante Vilches 120 120 6” Orihuela Elche PLANTA DE GRAN CANARIA Sines Linares Villacarrillo Murcia PLANTA DE CARTAGENA Las Palmas PLANTA DE SINES Córdoba VILLAFRANCA 12” 8” 150 36” 10” 1.125 Jaén Lorca Totana 1.350 150 150 26” 16” 150 Sevilla Martos 20” 10” Almonte Cartagena 20” 16” 127 150 150 Huelva 30” Puente Genil 10” 55 105 Guadix Baza Huércal‐Overa PLANTA DE TENERIFE 8” 30” 42” DOS HERMANAS 48” Almacenamiento subterráneo (Mm3(n) gas) 160 150 150 100 60 10” A.S.MARISMAS Granada Planta de regasificación (miles de m3 de GNL) 20” Almería Almacenamiento subterráneo (parado) Jerez 452 16” 1.350 12” Cártama Motril Planta de regasificación (hibernación/proyecto) Rota 10” Arcos 3 PLANTA DE HUELVA 62 10” Capacidad de extracción (miles de m (n)/h de gas) 16” POSEIDÓN Cádiz Málaga 3 Mijas Capacidad de regasificación (miles de m (n)/h) Estación de compresión Estepona 16” Capacidad de regasificación (en Gasoducto de transporte (primario) C.I. ALMERÍA proyecto/const.) C.I. TARIFA (secundario) 16” Algeciras Gasoducto de transporte Yacimiento (en proyecto/construcción)

Conexión intern. (miles de m3(n)/h) (INV./VERANO) General Overview

LNG increase diversification of sources, and therefore SoS enhancement

November 2018 5 General Overview

LNG vs NG Supplied to Spain

November 2018 6 General Overview

More traders in a market… more gas sources and vice versa…

Retail Market share evolution (in terms of gas volume supplied to final customers)

November 2018 7 General Overview

Gas demand for electricity generation fostered the development of LNG terminals in the 2000´s Natural gas demand evolution

Industrial and residential Electricity generation

November 2018 8 Wholesale prices and LNG

A market relying on LNG is exposed to global gas prices

Asia

Europe

Gas from Europe to Asia Gas from Europe to Asia USA

9 Wholesale prices and LNG

Gas prices at hubs with a big influence of LNG behaves differently Gas Market – Trading at MIBGAS Exchange

Winter 2018: European cold wave Spain price below all Winter 2017: spot LNG Price European markets tensions and high demand in Spain and South France

Autum 2017: Spain and South France decoupled (2‐4 €/MWh)

10 Wholesale prices and LNG

OTC trading volumes concentrate in LNG terminals Gas demand vs gas trade ‐ 2017

November 2018 11 Spanish LNG Sector – Situation in 2017

LNG infrastructures have low level of utilization for LNG STORAGE multiple reasons Mugardos 22,7 TWh (23 days) Medium tank level 43%

REGASIFICATION Barcelona UNLOADING Bilbao 216 Ships 169,6 TWh (48,3% of demand) 183,9 TWh Capacity contracts: 30% Utilization: 25% Virtual pipelines Sagunto LNG “by road” 38.821 trucks Huelva 11,4 TWh LOADING 5 ships 51 users Cartagena 1,05 TWh 274 TWh traded

12 Virtual pipelines : LNG transported in trucks to places where there is no pipeline, to satellite plants

2015 10.719 GWh supplied 34.400 trucks loaded

869 sites received LNG with trucks in 2015

59 destinations outside Spain in 2015: Portugal, France, Italy, Switzerland and 13 FYROM LNG Regulation ‐ TPA Regime in Spain

Full REGULATED TPA to all the terminals and services

• Transparent and public TPA tariffs • Transparent Capacity Allocation Mechanisms • Freedom of LNG terminal choice • Regasification (send‐out) rate decided by users • Possibility to contract capacity at any time and for any duration • Possibility to exchange and trade LNG (OTC market) • Possibility to exchange capacity at the secondary market • Anti hoarding mechanisms

14 LNG Regulation ‐ TPA Regime in Spain

Contracting regasification capacity give you the right to use the unloading, storage and regasification facilities

Capacity contracted FCFS, no time limit • MWh/day of regasification / truck loading rights • Unloading and storage rights included

Slots allocated when programming • Initial yearly schedule • Firm dates established by the 25th of m‐1

Daily nomination and gas allocation • Payments by the volume of gas stored each day • by the gas regasified each day • by each cargo unloaded/loaded LNG Regulation ‐ TPA Regime

ADDITIONAL SERVICES OFFERED in LNG terminals in Europe

1) Transshipment: transfer of LNG from one vessel to another.

2) Truck loading: transfer of LNG from the terminal into trucks.

3) Small ship loading: transfer of LNG from the terminal into small ships (<10.000 m3) for onshore uses.

4) Bunkering: when the LNG transferred from the terminal is used as fuel for transport (LNG fuelled ships, trucks, rail…).

5) Cooling down service: using LNG to cool down ships.

6) Storage as unbundled service: transfer of LNG into tanks of the terminal as a service not associated to the regasification capacity contract.

16 LNG market What do the users of the terminal want?

• Availability of capacity in the long and short term (avoid uncertainity)  Unloading capacity  Storage capacity  Regasification capacity  Truck loading  Ship loading • Flexibility  Slot flexibility  Services that could be adapted to the final market (different regasification schemes) • Compatibility  Ship‐Dock (unloading arms)  Gas quality

17 LNG regulated tariffs in Spain

LNG Tariffs are applied to 3 concepts: • Unloading LNG (fix & variable terms) • LNG storage (only variable term). Penalties for having “too much” LNG stored • Send out /regasification capacity (capacity & commodity charges) • Other services are also available: reload of LNG to ships / bunkering.

These are the values for annual tariffs. In case of shorter term capacity multipliers are applied (only to the capacity regasification charge). 18 Remuneration of LNG Spanish terminals

• Infrastructures development under a regulated economic regime: • Investment recovery guaranteed with a reasonable rate of return. No risk 1. Remuneration for availability

a. O&M costs: are established through standard costs

b. Investment costs: Depreciation costs + Financial remuneration (net of depreciation)

‐ Remuneration for depreciation = Investment value / working life

‐ Remuneration for financial costs = Net investment value (investment less depreciation) multiplied by rate of return

2. Remuneration for Continuity of Supply

‐Dependent of the Demand Variation with respect to the previous year: Higher if demand increase / Lower if demand decrease.

November 2018 19 LNG Market in Spain – OTC trading 2017

• LNG terminals in Spain are used by many shippers. Many companies unload and regasify in the terminal, and other can also storage LNG or load trucks (small scale), and others only trade

Share Traded gas Production Churn active Balancing point of 3 main (GWh) (GWh) rate traders traders Barcelona LNG Terminal 127.422 59.954 2,1 42 45% Huelva LNG Terminal 42.564 48.374 0,9 31 63% Bilbao LNG Terminal 56.477 29.916 1,9 26 59% Cartagena LNG Terminal 8.780 9.377 0,9 25 59% Mugardos LNG Terminal 9.880 11.756 0,8 20 65% Sagunto LNG Terminal 29.676 21.614 1,4 25 58% Total LNG 274.799 180.991 1,5 51 36% Underground storage (UGS) 3.497 21 68% Virtual balancing point (PVB) 237.471 169.897 1,4 77 22% Total Spain 515.767 350.888 1,5 82 27%

20 Current problems What happen when there is almost no gas in the terminals?

• Finantial problems: In the Spanish case, created a déficit to be paid by consumers (tariffs) in the coming years. Rate of return were decreased and linked with gas demand • The incentive for creativeness: LNG operator looking for new markets, ofering new services, compiting among each others to load cargoes, develop small scale, bunker… • Phisical and enviromental problems • Operational problems • Boil off gas: avoid emisions

21 Current LNG market constraints

The Current LNG market might still be limited because: 1. Is exclusively based on OTC operations 2. Is not transparent 3. Is not very liquid 4. There are as many LNG markets as LNG terminals: • Liquidity is limited to those terminals having enough users • Users willing to trade LNG at a particular terminal need to have TPA contract in the terminal • Users with bigger LNG portfolios have competitive advantages and more flexibility

22 Challenges – Towards a new LNG model

1. Provide new services, adapted to market needs, with competitive tariffs: o Bunkering o Virtual liquefaction, etc. 2. To give the right value to the flexibility offered by Spanish LNG terminals 3. Facilitate LNG management 4. Easy and agile TPA processes: contracting, nominating, etc. 5. Alleviate current congestions at specific LNG terminals 6. Reduce competitive advantages for large suppliers

23 Challenges – Towards a new LNG model

7. Facilitate LNG transactions and increase liquidity in the LNG market. 8. Encourage the creation of a potential LNG hub for Europe. 9. Provide more flexibility for users:  Unbundled services  Possibility to customize bundled services  Standard services, similar to other European LNG terminals

Improve competition in the Spanish (and European) LNG market

24 Future situation ‐ Type of LNG services in Spain

BUNDLED UNBUNDLED • Ships unloading • Transhipment • Regasification • Ship unloading, LNG storage and • Cooling down • LNG storage regasification • Bunkering • LNG trucks • Virtual liquefaction • Ships loading

LOCATIONAL NO LOCATIONAL • Ships unloading • Transhipment • Regasification • LNG trucks • Cooling down • LNG storage • Ships loading • Bunkering • Virtual liquefaction

DISCONTINUOUS CONTINUOUS • Regasification • Ships unloading • Cooling down • LNG storage • Ships loading • Bunkering • LNG trucks • Transhipment • Virtual liquefaction

25 Innovation in LNG Use of LNG as fuel for road transportation Filing stations: Compressed Natural Gas and LNG for vehicles

Source: Criogénicas Técnicas aplicaciones industriales 26 Innovation in LNG Use of LNG as fuel for maritime transportation

Calorific values:

1 Tm LNG = 15,200 kWh 1 Tm LPG (propano) = 13,800 kWh 1 Tm Diesel = 10,400 kWh 1 Tm Fueloil = 10,100 kWh

27 Thank you for your attention!

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