Examining the latest developments for the BBL and Zuidwending Willem Faber, Director BBL Company and Gasunie Zuidwending Flame 2011 Sheet 1 Good afternoon ladies and gentlemen, As you can see from my first slide I‘m playing a double role here today. I‘d like to address you as both the Director of BBL Company and as the Director of Gasunie Zuidwending and examine with you the latest developments for the BBL and Gasunie Zuidwending. The first company operates the BBL-pipeline that transports gas from Balgzand in the Netherlands to Bacton in the UK. With respect to the BBL I would like to explain you today the developments regarding ”interruptible reverse flow‘. Sheet 2 It‘s a brand new service that has been introduced to the market, after extensive preparations. With this service and that of the firm forward flow, BBL Company is contributing to securing cross-border transmission capacity. And that‘s the second topic I like to address. Not only does BBL Company secure capacity, but so does Gasunie Zuidwending, with its newly-opened underground gas storage facility. This storage, with unique technical features, provides a huge amount of within-day flexibility. 1 The third item I would like to share with you is our first experiences regarding this within-day service which came into operation on the 1st of January. Sheet 3 The BBL came on-stream on the 1st of December 2006. It‘s a smoothly functioning joint venture between Gasunie, EON Ruhrgas and Fluxys. It took more then ⁄500 million to build the 235 kilometres of offshore pipeline and a compressor station in Holland. The system provides physical gas flow that goes in one direction: from the Netherlands to the UK. BBL Company obtained a tariff exemption, which was amended by the European Commission at the last moment. The exemption only applies to the forward flow capacity of the launching customers, so not to the total capacity that the pipeline is able to offer. Sheet 4 It was clear from the outset that authorities were keen on establishing the possibility of reverse flow. However, market appetite was so low that we were not able to create a business case. Therefore, it was agreed that BBL Company would implement a non-physical reverse flow service; it‘s called Interruptible Reverse Flow (IRF) and is based on the presence of forward flows. IRF provides, therefore, for an administrative service with which gas flows are netted off. It offers the opportunity œ when there is sufficient forward flow - to benefit from lower prices in the UK than on the continent. We thought it would be a piece of cake to organise this IRF service……boy, were we mistaken... 2 As explained earlier this IRF service was not exempted, therefore market consultations were mandatory and the conditions needed approval from two regulators. BBL Company consulted the market on more than one occasion, and handed in different proposals to the English and Dutch regulators. Finally, we obtained approval for a tariff methodology based on auctions on the 21st of May 2010. Auctioning IRF was new for BBL Company and therefore a third party auction system needed to be aligned with our existing IT framework, which took a major effort. And when BBL Company was ready to offer the services to the market in August 2010 for auctioning IRF capacity for the last quarter of that year, it turned out that not all the prerequisites under the Network Code had been fulfilled. The appointment of an Exit Agent, conclusion of an Ancillary Agreement with National Grid and implementation of IT-systems on the UK side all needed to be done before more than one shipper could make actual use of the IRF service, and this caused additional delays. During this whole process BBL Company acted as much as possible as an intermediary between parties involved, aiming to proactively facilitate the process. Finally, the UK side was ready by the 18th of January this year. On the whole we can safely say that introducing IRF to the market proved to be a time- consuming and difficult task. But how does the system work? The fundamentals basically are: • We offer quarterly, monthly and daily products; • Interruption is based first of all on: the product type (priority is given to quarter above month and month above day), and secondly it‘s based on: price level (from high to low); • There is a zero reserve price and the resulting contract price is on the basis of pay-as-bid; • Furthermore, shippers pay together a subscription fee of in total ⁄45.000 a year. The slide shows the amount of IRF capacities sold in the different categories. And we are pleased to be able to say that interest for the IRF service is sound and growing still, both in terms of numbers of IRF shippers and actual use of the IRF capacity. As you can see from the slide the IRF-volumes œ the red line at the bottom of the graph - are modest, but growing. And last week even interruption took place due to the lack of forward flow. For BBL Company however, it must be said, money doesn‘t grow on trees when it comes to this service. And that‘s what we expected and it‘s in line with the difficulties surrounding the creation of a business case in the early days of setting up the project. However, we expect that interest for IRF will grow further in the summer and be used more intensely then due to the gas surplus on the English side. Maybe we‘ll start making some money then. 3 Sheet 5 Now I‘d like to say a few words about securing cross-border transmission capacity in terms of the firm forward flow capacity from the Netherlands to the UK. Although there have been serious technical breakdowns in the past concerning our electrically driven compressors, BBL Company has managed in the past 4,5 years to comply with the requested flows, with just a few minor exceptions. This excellent performance was based on the N+1 spare philosophy for the compressors. Following the second breakdown a detailed root cause analysis revealed the source of the problem and in good cooperation with the supplier of the motors, repairs and retrofits were planned. Just recently the last motor was sent to Berlin for the retrofit and is expected to be back in service before the next winter season. We have also recently œ with a little delay - taken a 4th compressor into operation, which will enable us to offer 3.2 BCM extra capacity. Part of this capacity is still available in the short term, as you can see behind me. It‘s also clear from the slide that substantial amounts of firm forward capacity as of December 2016 are still for sale. One of the potential stumbling blocks for selling this capacity is the non-availability of firm exit-capacity to enter the BBL at Julianadorp on the Dutch side. It will depend on what is termed the —Method Decision“ that will be taken by the Dutch regulator during the course of this year whether exit capacity will become available. Sheet 6 4 I‘d like to put the BBL-project into a broader Dutch perspective. The primary function of the Dutch gas roundabout is to facilitate the gas market. In attracting new gas flows in the form of Nord Stream, Norwegian gas and LNG, and in strengthening cross-border infrastructure from Berlin to Bacton in the UK, the gas roundabout also serves to secure cross-border energy supplies for the future. To further enhance the cross-border nature of the network, BBL Company may consider running a joint Open Season with Gas Transport Services and Gasunie Deutschland. You can‘t see them, but as said before I‘m actually standing here with two different hats on. Besides the BBL Company, I also have the privilege to be the Managing Director of Gasunie Zuidwending, the latest addition to the Gasunie family. So I‘d like to tell you a little more about Gasunie Zuidwending, another part of the Dutch gas roundabout. Slide 7 Opened in January this year, Zuidwending is a newly-developed underground gas storage in salt caverns at the heart of the gas roundabout, directly connected to the TTF market area and the Gas Transport Services network. We call it —the lungs at the heart of the NW European gas roundabout“. You could say that this storage facility breathes according to the demands of the market, breathing out when the market needs more gas, and breathing in when gas needs to be stored for later use. What do you do when there‘s too much or too little gas available in the system? This fluctuation in demand needs to be absorbed. There are different ways of doing this. You can offer interruptible services in the market, for example. Alternatively, you can offer storage services in the very short term to match supply and demand. It is therefore essential for companies engaged in trade, transport and distribution of natural gas to have ready access to this type of flexible capacity so that short term variations can always be met in a safe and reliable manner. Gasunie Zuidwending is of course not the only underground gas storage in the world. But it is unique in its set-up and is one of very few facilities in the world which can offer huge within-day flexibilities to market parties. 5 Slide 8 The managing director of a new company often talks proudly about his newest —baby“, and I hope you‘ll forgive me a moment of pride in Zuidwending.