Gas in Denmark. Plan for security of natural gas supply

Transcription

1 Gas in Denmark Plan for security of natural gas supply

2 Gas in Denmark Plan for security of natural gas supply 2009 Published by Energinet.dk For a copy of the plan, please contact: Energinet.dk Tonne Kjærsvej 65 DK-7000 Fredericia Tel The report can also be downloaded from: ISBN no December 2009 Doc /09, File 09/765 2/71

3 Table of contents 1. Summary Legal framework Security of supply during the past year Security of supply over the next year Security of supply ten years ahead The Danish natural gas system Infrastructure Security of supply objective Security of supply nationally and locally European and Danish natural gas markets Themes Open Season International cooperation Gas quality project Reducing the pressure in the North Sea Biogas Integrated planning of energy systems Historical overview General Security of supply Market Gas quality Consumption and supply one year ahead (winter outlook) Short-term security of supply Capacity orders Emergency supply Gas quality Supplies from Germany Future consumption and supplies Challenges for the coming years Consumption development Long-term security of supply Transit to Germany Gas quality Need for infrastructure investments Expansion in relation to market needs Recommended and expected technical solution Tariff and transport costs after new investments Potential long-term need for additional investment Distribution Capacities and offtake Special security of supply issues in the individual distribution areas Doc /09, File 09/765 3/71

4 1. Summary 1.1 Legal framework The legal framework regulating the security of supply is laid down in the Danish Act on Natural Gas Supply (Naturgasforsyningsloven), the Danish Act on Energinet.dk (Lov om Energinet Danmark) and in the Danish Executive Order on Security of Natural Gas Supply (Bekendtgørelse om varetagelse af naturgasforsyningssikkerheden). The responsibility for Denmark s security of supply lies with Energinet.dk. The responsibility for ensuring security of supply is held in concert with other players in the natural gas sector, including the distribution companies and the storage companies. Specifically, the responsibility for ensuring security of supply consists of observing minimum standards for security of supply and preparing an annual plan for the security of natural gas supply. The plan must describe how security of supply has been ensured during the period under review and how it will be ensured one and ten years ahead. In addition, the plan must account for the means used to maintain security of supply in emergency supply situations. Security of supply has been determined on the basis of an objective which stipulates that, in the event of full or partial interruption of the supply to the Danish market, the supply of uninterruptible consumers must, as a minimum, be maintained for: 3 days during particularly cold periods, which, on average, occur every 20 years 60 days during a normal-temperature winter. Furthermore, the transmission system has been dimensioned to supply all consumers in normal supply conditions as well as in particularly cold winter situations with a daily mean temperature of -13 C. In the summer of 2009, the EU adopted the third liberalisation package, which aims to improve the European markets for electricity and gas. The package contains, among other things, a regulation establishing a new EU agency, the Agency for the Cooperation of Energy Regulators (ACER), which will be responsible for enhancing cooperation between the European energy regulators, including the Danish Energy Regulatory Authority. The third liberalisation package also contains provisions on the creation of a new cooperative body, the European Network of Transmission System Operators for Gas (ENTSO-G), which aims to strengthen the cooperation between the European TSOs (including Energinet.dk) and promote the development of the European gas markets. Moreover, the European Commission has proposed a new regulation on security of supply which may result in security of supply ceasing to be a national issue and becoming a regional responsibility. Energinet.dk expects that this may result in joint, regional security of supply contingency preparedness for Denmark Doc /09, File 09/765 4/71

5 and Sweden and perhaps also Northern Germany. The current draft regulation makes stricter requirements for security of supply, but it is still too early in the process to predict the final wording and the consequences for Denmark. The proposal thus needs to be considered by both the Council of Ministers and the European Parliament before it can be adopted in Security of supply during the past year So far, natural gas consumption in Denmark has been around 4 billion Nm 3 /year in normal years, but there has been a slight decline in consumption over the past few years. In 2008, natural gas exports to Sweden were on a par with the level in 2007, ie 0.9 billion m 3 /year, whereas exports to Germany increased considerably and exports to the Netherlands decreased. Approx. 21% of the production in 2008 was exported to the Netherlands, whereas approx. 9% and 24%, respectively, were exported to Sweden and Germany, respectively. The production of natural gas in the Danish part of the North Sea rose slightly in 2008 to approx. 9.6 billion m 3 /year. Approx. 10% of the total production was used in the fields as fuel, for injection or just burned (flaring). The share of natural gas used for injection in connection with oil extraction is expected to grow significantly in the coming years as it becomes increasingly difficult to extract the oil. In the winter of 2008/2009, the maximum net transport amounted to approx. 26 million Nm 3 /day. The day of the maximum net transport coincided with the day of the maximum offtake (5 January 2009) in Denmark (exit zone Denmark), which was 19.0 million Nm 3 /day. Exports to Sweden and Germany reached 2.2 million Nm 3 /day and 4.8 million Nm 3 /day, respectively, on this day, whereas the maximum offtakes in 2008 totalled 5.0 million Nm 3 /day and 8.3 million Nm 3 /day, respectively. The quality of the natural gas supplied to consumers in all of 2008 and the first half of 2009 fulfilled the applicable quality requirements. As before, 2008 also saw a number of short-lived interruptions of supplies to Nybro, none of which were critical to security of supply. Energinet.dk has noted that the stability of the supplies from the Tyra field seems to have been declining in the last few years, however, without reaching a critical level. The past year has seen an increase in the number of active shippers with Energinet.dk, which now count around 25. It has now been more than eighteen months since Nord Pool Gas Exchange (NPG) opened up for day product trading, and an average of trades have been made each month in the past year. Doc /09, File 09/765 5/71

6 1.3 Security of supply over the next year Over the coming year, Danish natural gas consumption is expected to continue its slightly downward trend. The same is the case with supplies from the North Sea as the incipient fall in production is likely to gather momentum. It is uncertain how steep the decline in supplies to the Danish gas transmission system will be as this depends on whether exports are made to Germany via the Danish gas transmission system or directly to the Netherlands via the NOGAT upstream pipeline from the North Sea fields. The quality of the natural gas will continue to be dominated by the Danish North Sea gas in 2010, and Energinet.dk is therefore not expecting any major changes in the natural gas quality. Smaller volumes of natural gas may be imported from Germany, which may change the gas quality in the supply area south of Egtved. Such change will, however, be within the applicable quality requirements. Based on historical data, Danish consumption is estimated to be approx million Nm 3 /day at a daily mean temperature of -13 C. The transmission and distribution systems are designed for such a winter situation where exports to Sweden and Germany are also maintained. Figure 1.1 below shows the supply situation on a cold winter s day. Figure 1.1 Forecast for a winter situation with a daily mean temperature of -13 C in 2009/2010 (normal situation). [mio. = million] The transmission and distribution systems fulfil the Danish requirements for emergency supply in the event of full or partial interruption of the supply from the North Sea. Doc /09, File 09/765 6/71

7 1.4 Security of supply ten years ahead The production of natural gas in the Danish part of the North Sea will fall sharply within the coming years, and will, according to the Danish Energy Agency, be more or less phased out by As the North Sea is currently the only physical possibility of supplying gas to Denmark and Sweden, there is a risk of supply problems within a relatively few years if Energinet.dk does not invest in new infrastructure that enables supplies to Denmark and Sweden from sources other than the Danish part of the North Sea. To identify the wishes and expectations of market players for the future capacity requirement in the transmission system, Energinet.dk conducted an Open Season process in The Open Season 2009 process is a two-phased solicitation procedure that allows the market players to submit bids for long-term transport contracts concerning newly established transmission capacity. Based on the bids from the Open Season process in September 2009 and Energinet.dk s own planning considerations, it is the assessment of Energinet.dk that the Danish market will have to receive supplies from Germany in the near future. The interconnection to Germany involves establishing a compressor as well as looping the Frøslev Egtved pipeline. The investment decision must be approved by the Danish Minister for Climate and Energy, and this is expected to happen at the beginning of The final solution will not be ready until the end of 2010 following the completion of a parallel Open Season process in the German system in 2009 and an Environmental Impact Assessment (EIA) in Denmark in 2009/2010 and a final decision from Germany regarding expansion at the end of The production of biogas in Denmark is expected to increase in the coming years to a level in 2020 corresponding to 10% of current natural gas consumption. Today, biogas is used at local CHP plants. In the long term, it may be expedient to inject the biogas into the natural gas grid to meet the challenges concerning flexibility in connection with the production and consumption of biogas as well as to increase the sales opportunities. The distribution companies and Energinet.dk are therefore preparing the gas system for this. Consumers receiving, for example, Russian, Norwegian or German gas supplies in the future are expected as are many consumers in the rest of Europe to be supplied with gas with a more varied and generally lower calorific value than today. In cooperation with the rest of the natural gas sector, Energinet.dk ensures that the transmission and distribution systems also in the long term fulfil the requirements of emergency supply in the event of full or partial interruption of the supply to the Danish market. Energinet.dk will continue its work to explore the possibility of establishing an interconnection between the Danish and Norwegian gas infrastructures after This can be seen as a continuation of Energinet.dk s participation in Skanled and is intended to ensure security of supply in the Danish gas market Doc /09, File 09/765 7/71

8 once Danish North Sea production starts to wane. An interconnection to Norway can also generate transit compensation and contribute to making other EU countries less dependent on gas from mainly one source of supply. Doc /09, File 09/765 8/71

9 2. The Danish natural gas system 2.1 Infrastructure The Danish gas transmission system consists of upstream pipelines in the Danish part of the North Sea and of onshore transmission pipelines. The transmission pipelines go north-south (Aalborg-Ellund) and west-east (Nybro-Dragør), and the distribution pipelines are made up of a grid of pipeline systems to the consumers. Moreover, the natural gas transmission system consists of a gas treatment plant (Nybro) and two underground gas storage facilities (Stenlille and Lille Torup), see Figure 2.1. Natural gas from the Danish section of the North Sea is transported through two offshore pipelines from the Tyra and Syd Arne fields to the shore north of Esbjerg at a maximum pressure of 138 bar. In summer with lower daily quantities, the outlet pressure is reduced to minimise the energy consumption for compression. In winter, the pressure is increased to also ensure large volumes of line pack (ie the gas volume naturally stored in the actual gas pipelines) in the event of disruptions and emergency situations. On shore, the natural gas passes through a gas treatment plant in Nybro. Here, the quality of the gas is checked and measured, and pressure is reduced to the maximum pressure for land pipelines of 80 bar. The plant can also reduce the content of impurities such as heavy hydrocarbons, and remove any hydrogen sulphide if necessary for the gas to comply with the agreed specifications. If the gas is to be cleaned, only reduced volumes can be supplied (about 50%). From Nybro, the gas is sent to customers in Denmark and in other countries or for storage at one of two underground natural gas storage facilities. The storage facilities are typically filled up during the summer months when gas consumption is low. As the weather gets colder and consumption starts to exceed daily gas supplies from the North Sea, production is supplemented with gas from the storage facilities. In addition to making seasonal adjustments, trading in gas can influence exports and imports, and thus storage withdrawals and injections. In principle, the shippers daily orders within the reserved capacity determine the hourly input/output from the system (the commercial system), while Energinet.dk is responsible for maintaining the physical system balance, for example by means of the storage facilities and line-packing. Moreover, the storage facilities are used for emergency supply purposes. Meter and regulator stations (M/R stations) have been established along the transmission pipelines for the purpose of supplying the local distribution grids. Their function is to reduce gas pressure to that of the distribution grid, heat the gas, meter the gas flow through the station and add odorant to the gas. A total of 42 meter and regulator stations and four specific metering stations have been established, all of which are owned by Energinet.dk. Doc /09, File 09/765 9/71

10 Figure 2.1 Main Danish gas infrastructure 2.2 Security of supply objective Supplies to the Danish natural gas market are largely based on only one physical source of supply and one supply route (the Tyra-Nybro pipeline). If this source of supply is not available, Denmark will be faced with serious challenges in terms of contingency preparedness compared to many other countries that have several major sources of supply and routes. There is both a political desire and a wish from the system operator for security of supply. This also implies that in practice emergency supply situations have been dimensioned for the main transmission system and that it has been possible to supply all customers even in extremely cold weather. As the body responsible for security of supply, Energinet.dk must fulfil its emergency supply obligation in the Danish gas market. This means that Energinet.dk in an emergency supply situation will take over the supplies to the Danish gas market from the market players. To this end, Energinet.dk purchases alternative transport capacity in the Syd Arne pipeline, reserves capacity in the storage facilities and enters into agreements on interruptibility with a number of major consumers. German and Swedish export customers can also receive gas in an emergency situation provided that they can make a similar volume of gas available from one of the storage facilities or in Nybro via Syd Arne. Since the commissioning of the Danish natural gas system in 1984, there has been no serious damage to the transmission system, neither on the offshore pipelines nor the onshore facilities. However, on 8 November 2007, Energinet.dk activated its emergency supply management and declared an emergency supply situation for storage customers and shippers as a consequence of the production stops caused by storms and unusually big waves at the North Sea fields. The emergency supply situation was called off after 28 hours. Doc /09, File 09/765 10/71

11 Energinet.dk has two objectives for the security of supply of the Danish gas market which in combination dimension the reserve emergency management level in emergency situations. One objective concerns short-term events with requirements being made as to how fast gas must be supplied from sources other than the North Sea. In practice, this objective places demands on the withdrawal capacity of the gas storage facilities. The other objective concerns long-term events with requirements pertaining to the upkeep of physical supplies in case of longer-term interruptions of supplies through DONG Energy s Tyra-Nybro upstream pipeline in the North Sea. In practice, this objective requires the procurement of a certain volume of gas from alternative sources as well as the availability of a specific volume of stored gas. In March 2001, the overall security of supply objectives were reported to the Danish Energy Agency with the following dimensioning events for Energinet.dk s emergency supply management: Short-term events: Under normal as well as irregular supply conditions (complete interruption of supplies from the largest source of supply), Energinet.dk must have access to sufficient withdrawal capacity from the storage facilities to be able to maintain supplies to uninterruptible consumers in Denmark for three consecutive days down to a daily mean temperature of -13 C (the 20-year event). Long-term events: Under irregular supply conditions (complete interruption of supplies from the largest supplier), Energinet.dk must have sufficient volumes to maintain supplies to uninterruptible consumers in Denmark for up to approx. 60 days (corresponding to the expected repair time after the breakdown of an offshore pipeline) during a winter with normal temperatures. Energinet.dk s criteria for designing the transmission system also comprise winter situations with normal supply conditions without interruption of supplies. The security of supply objective for cold winter situations today is to have sufficient transmission capacity to handle the supply to all consumers in Denmark down to a daily mean temperature of -13 C. Energinet.dk s emergency supply concept, described in more detail in section 5.3, is expected to be reassessed in the light of, for example, the planned expansion to Germany and the EU s planned emergency supply regulation, which is expected to be passed in Security of supply nationally and locally Security of gas supply generally includes the following factors, both in the short and in the long term: Doc /09, File 09/765 11/71

12 1. The availability of gas, ie the availability of gas supplies (including gas from storage facilities) must be sufficient to meet Danish consumer demand under normal as well as extreme weather conditions. 2. Adequate grid capacity, ie the gas grid must have sufficient capacity to meet consumer demand under normal as well as extreme weather conditions. 3. System integrity, ie the operational functionality of the system from production to consumer must be guaranteed. The Danish Natural Gas Supply Act entrusts Energinet.dk, as transmission system operator (TSO), with the responsibility for ensuring security of supply in the Danish gas market in parallel with its TSO responsibility. As the only Danish TSO, Energinet.dk is responsible for the system integrity (3) of the Danish transmission system, ie the interaction between the 80-bar pipeline system and the adjacent systems. Specifically, Energinet.dk is responsible for ensuring adequate transport capacity in the transmission system (2), including transport capacity to and from the storage facilities and to the distribution systems via M/R stations. The distribution companies are responsible for the security of supply in the distribution systems right from the downstream side of the transmission system s M/R stations to the individual consumer. Energinet.dk is responsible for the availability of gas (1), except in emergency supply situations where Energinet.dk must ensure the availability of gas for the Danish market, as necessary. The market players are responsible for the availability of gas, whereas Energinet.dk is responsible for ensuring the required infrastructure to and from adjacent systems. 2.4 European and Danish natural gas markets Europe The market situation in Europe is still characterised by primarily national markets with national spot trading and significant and increasing cross-border trading binding these together and creating an often pronounced correlation between them. A proper and coherent spot market for natural gas in Europe is yet to be established. One reason for the lack of cross-border spot trading is general capacity shortages, especially at the border points, a lack of interoperability between the different national systems and as yet highly limited spot trading in several countries, including Denmark. Most European countries are net importers of gas. Imports come primarily from Russia, Norway, Algeria and Morocco. A growing proportion of imports is LNGbased (Liquefied Natural Gas, gas cooled down to approx o C and imported by ship), but most of the gas reaches the European markets via pipelines. Domestic production is falling throughout Europe, while consumption and thus Doc /09, File 09/765 12/71

13 imports are on the rise and are expected to continue rising over the coming years. By 2030, the European Commission expects 80% of the EU s gas consumption to be covered by imports. Today, imports account for just over 50% of consumption, with approx. 25% of gas imports coming from Russia and 20% from Norway. The dependence on large supplies from one source through a number of countries gives rise to growing concerns that technical, commercial and political problems and disagreements will lead to situations with gas shortages in Europe and thus reduced security of supply. The gas crisis in 2008 between Ukraine and Russia further highlighted the risk of being dependent on Russian gas supplied via Ukraine, and it meant, among other things, that the European Commission accelerated the preparation of a draft security of supply regulation. The regulation is expected to be passed with binding force for all EU member states in A number of major infrastructural projects are currently being planned which are aimed at bringing more gas to Europe. New pipelines are thus being planned for example between Northern Europe and Russia (Nord Stream) and between Southern Europe and Russia/Caucasus (South Stream), the Middle East (Nabucco) and North Africa, respectively. Moreover, a number of LNG port facilities are being planned and designed in both Southern and Northern Europe. At European level, work is taking place to strengthen compatibility between the systems in the individual countries. The aim is to increase the scope for exchanging gas between regional hubs and to solve the problems of cross-border interoperability. This work is supported by Energinet.dk through Gas Infrastructure Europe (GIE) as well as bilateral cooperation with neighbouring TSOs Denmark The Danish gas market was fully liberalised in January 2004 to allow all consumers a free choice of natural gas supplier. The opening in 2008 of the first gas exchange in Denmark (Nord Pool Gas) paved the way for enhanced competition in the wholesale market. Energinet.dk s role is to ensure an efficient and flexible gas market. This means, for instance, that Energinet.dk develops products and facilities that can be used by commercial players for gas trading. Gas market wholesalers (shippers) can: Conclude daily, weekly, monthly and annual contracts for transport capacity. Trade gas on the gas exchange in Denmark, Nord Pool Gas (NPG). Here, shippers can trade anonymously as the gas exchange is the counterparty in all trades Conclude monthly balancing service agreements (right to imbalances between the within-day supplies and offtake). Order capacity and balancing services and keep abreast of own orders online via Energinet.dk self-service portal Doc /09, File 09/765 13/71

14 Trade gas, capacity and balancing services bilaterally with each other via Energinet.dk s ownership transfer facilities: Gas Transfer Facility, Capacity Transfer Facility and Balance Transfer Facility Shippers can meet and trade bilaterally via the electronic bulletin board. In 2009, Energinet.dk has increased transparency vis-à-vis its customers through a number of updates of Energinet.dk s self-service portal. Shippers can now, on a daily basis, download a large number of data such as physical and commercial flow data for the past three years, the specific customer s own balance position for the four most relevant gas days as well as the individual customer s invoices and documents. The market model for the Danish transmission system (the wholesale market) is designed as an entry-exit model, see Figure 2.2. Figure 2.2 Market model for the transmission system The market model consists of: Three entry points in Nybro, Ellund and Dragør where the natural gas enters Denmark commercially (physically, the gas only enters in Nybro at present). An exit zone where Danish consumers are supplied with natural gas by the gas suppliers via the distribution grid. The exit zone is made up of four distribution areas, each with its own distribution company. The exit zone also has three large power stations (Avedøre II, H.C. Ørsted Power Station and Skærbæk Power Station), which are directly connected to the transmission grid. For this, the distribution companies and Energinet.dk have designed the market model to also enable commercial biogas trading from the distribution systems to the transmission system when the first biogas producer is connected to one of the distribution systems. Doc /09, File 09/765 14/71

15 Three transit exit points in Nybro, Ellund and Dragør, where natural gas can be exported from Denmark. Two virtual gas trading points, the bilaterally agreement-based Gas Transfer Facility (GTF) and the multilateral gas exchange Nord Pool Gas Transfer Facility (NPTF) where shippers can trade natural gas with each other. Two physical storage points covering the storage facilities in Stenlille and Lille Torup. Here, shippers which have bought storage capacity can inject gas into and withdraw gas from the facilities. A number of gas suppliers operate in the retail market from among whom all natural gas consumers in Denmark have been able to choose freely since 1 January The number of gas supplier shifts is not overwhelming, and it is in particular major gas consumers who have changed supplier, especially electricity and heat generators as well as major industrial consumers. In 2008, 0.5% of consumers with a consumption corresponding to approx. 17% of the total volume thus changed gas supplier. Doc /09, File 09/765 15/71

16 3. Themes 3.1 Open Season The Open season process In recent years, Open Season processes have been a central tool in the expansion of the European gas transmission grid, also including Energinet.dk s expansion of the Danish transmission system to border points to adjacent systems. An Open Season process is a two-phased bidding process where market players can submit bids for long-term transport contracts concerning newly established transmission capacity. Energinet.dk undertakes to establish the capacity if demand proves sufficiently large. The background for the prevalence of Open Season processes is that the market players are deemed to be in the best position for estimating their own future transport requirements and thus have an interest in which new transport channels are opened. In an Open Season process, the dialogue with the market players is formalised in a bidding process concerning new capacity for long-term transport contracts (typically years duration for long-term contracts and 1-9 years for short-term contracts) and thus provides safe investment indications for future system expansion. In the Danish system, Open Season processes are coordinated with similar processes among operators in adjacent systems. Energinet.dk s 2009 Open Season process can be summarised by the following stages: Initial discussions with market players, operators and authorities autumn 2008 Phase 1 submission of non-binding bids 29 January to 30 April 2009 Phase 2 submission of binding bids 27 July to 7 September 2009 Decision on expansion and conclusion of contracts December 2009 to January 2010 From the start, the Open Season process identified four potential border points to the Danish transmission system as connecting links to adjacent systems from which gas could be imported or sent in transit through the system: Entry in Sæby from Skanled and the Norwegian gas fields Entry and exit in Avedøre to Baltic Pipe and the Polish gas market Exit in Dragør to the Swedish gas market Entry (and additional exit) in Ellund from the German gas market. Doc /09, File 09/765 16/71

17 Figure 3.1 Points offered in the 2009 Open Season process with related infrastructure Having the overall responsibility for the system, Energinet.dk cannot exclusively base the expansion on the players capacity orders but has to supplement market signals with analyses of total future demand and the requirements in emergency situations as well as views on how to promote competition. The following criteria were thus set up by agreement with the Danish Energy Regulatory Authority for qualifying the above border points: Bids for a minimum of 70% of the potential technical capacity in the relevant border point, or identified considerable socio-economic benefits of the investment, including considerations on required capacity expansion in relation to the production forecasts for the North Sea Result of the Open Season process As the Skanled project was suspended immediately before the first bidding round, the point in Sæby became irrelevant. The same applied to the Avedøre point to Baltic Pipe, which was based on transit volumes from Skanled. In phase 1, only Ellund qualified for inclusion in phase 2, while demand concerning Dragør to Sweden was too limited to justify qualification for this. In phase 2, it was thus only possible to submit bids for the Ellund entry and exit points. In phase 2, stage 1 concerning expansion at Ellund entry (a compressor in southern Jutland) was qualified by the 2009 Open Season demand already from 2013, ie demand for more than 70% of the stage 1 capacity. As for stage 2 concerning the expansion of Ellund entry, a compressor and the looping of the Ellund-Egtved pipeline, bids were submitted for a total of 64% of the technical capacity limit. Doc /09, File 09/765 17/71

18 The situation is shown in Figure 3.2 in which the grey columns show the capacity limits for investment stages 1 and 2, respectively. The yellow dotted lines show the economic investment limit. The blue column indicates the total bids. It was possible to submit bids for both Ellund entry and Ellund exit. As can be seen from the figure, no bids were submitted for Ellund exit in phase 2. Mill. kwh/h Total demand, technical and economic capacity limits Economic limits - 70% of technical capacity Mill. kwh/h Ellund, entry Ellund, exit 0 Total demand Stage 1 - Capacity Stage 2 - Capacity Figure 3.2 Results for phase 2 of 2009 Open Season: Long-term and short-term demand in relation to technical and economic limits for investment stages 1 and 2 Depending on whether there were one or more bidders, the competition authorities have expressed a wish that up to 30% of new capacity must be reserved for the sale of short-term contracts on Energinet.dk s general terms and conditions. Energinet.dk s wish to meet the entire demand in the 2009 Open Season process is best fulfilled by realising stage 2. Energinet.dk s own parallel planning analyses also show a corresponding need for expansion to stage 2 to ensure security of supply and competition in the market. Expansion to stage 2 is thus expected to provide a number of significant advantages in terms of security of supply, competition and economy. Concurrently with this, Gasunie Deutschland is conducting an Open Season process, and the preliminary non-binding bids are expected to qualify a parallel German expansion similar to stage 2 south of the Danish-German border. Status after the second binding bidding round in the 2009 Open Season process is thus that competitive considerations and the parallel demand in Germany speak in favour of investment in stage Considerations concerning Open Season 2010 The 2009 Open Season process did not result in investments to increase the capacity in Dragør to the Swedish market. The investment signals were weak Doc /09, File 09/765 18/71

19 and would not per se justify considerable dedicated investments in the Danish system. A possible explanation for the low order level at Dragør in the 2009 Open Season process may be the parallel work on the Skanled project, which would, exactly, provide Swedish consumers with an alternative supply route. Swedish customers counting on receiving gas through Skanled may thus have decided not to send signals about their capacity demand in the Danish Open Season. With Skanled out of the equation, the question is whether the existing technical capacity in Dragør is sufficient. The most expedient way of increasing the capacity in Dragør is to invest in the Danish system. In dialogue with Swedish players, Energinet.dk is looking into market demand and a possible 2010 Open Season process aimed at Dragør exit. 3.2 International cooperation New EU legislation passed Energy has been high on the European agenda in the spring and summer of What impacts the gas area most is the final adoption of the third liberalisation package in July Third liberalisation package The third liberalisation package 1 was adopted to improve the European markets for electricity and gas. The third liberalisation package contains revised directives and regulations within both the electricity and gas areas as well as a regulation establishing a new EU agency, the Agency for the Cooperation of Energy Regulators (ACER), which will be responsible for enhancing the cooperation between the European energy regulators. The package was adopted in July 2009 and came into effect 20 days later. According to the package, European regulators have 18 months to establish the new European agency for the cooperation between the national regulators, ACER. The period until March 2011 thus serves as a kind of pilot phase for testing the new working structure, but during which the rules developed in cooperation with the relevant TSOs cannot yet be made binding. Energinet.dk already meets the new clearer requirements for separating transmission activities and commercial activities. Other elements in the third liberalisation package are intended to protect consumers, increase transparency in the markets and strengthen the position of the regulators with increased national authority as well as by establishing ACER. 1 Doc /09, File 09/765 19/71

20 Energinet.dk is carrying out analyses to identify the need for changes in the existing market regulations and/or other practices to ensure that Energinet.dk meets all the obligations set out in the liberalisation package. A particularly important element in the third liberalisation package which is of major importance to Energinet.dk is the establishment of the European Network of Transmission System Operators for Gas (ENTSO-G). The main purpose of the new organisation is to improve the cooperation between the European TSOs and to further develop the framework for common European development of the energy markets. With ENTSO-G, the TSOs will be seriously involved in the official EU cooperation in the energy area where the following main tasks will have to be solved: Development of market regulations and technical regulations for crossborder issues R&D activities Operational cooperation Investment planning in the form of 10-year grid development plans. ENTSO-G s official cooperation status, tasks and its binding nature make the ENTSO-G an important forum for the development of European energy policy and for the operational cooperation across the EU. Energinet.dk has thus decided to participate actively in the ENTSO-G cooperation. In the second half of 2009, the TSOs have prepared the statutes for the ENTSO-G, and ENTSO-G is expected to be fully operational as from 1 January The European Commission, the regulators and the TSOs agree that the pilot period from January 2010 to April 2011 should be used to test the new structure outlined in the third liberalisation package. Based on the input from the regulators and the TSOs, the Commission will thus prepare a prioritised list of the market regulations and technical regulations to be established. The regulators will prepare the initial framework, and the TSOs will then draft the first regulations, which will initially be subject to a consultation procedure with all stakeholders. They will then be commented on and approved by the regulators and the Commission and finally be made binding. Capacity allocation mechanisms and the handling of capacity limitations are expected to be the first area for which common regulations will have to be prepared, followed by the balancing area. Energinet.dk is already involved in the international cooperation via the third liberalisation package and is expecting to actively participate in the first working groups to be set up in ENTSO-G in 2010 and will also play an active role in terms of structuring the future cooperation between the TSOs in ENTSO-G in the best possible way for the market. RE Directive and targets The adoption of the EU s Climate and Energy Package in April 2009 was at the same time the formal adoption of the so-called targets. The targets Doc /09, File 09/765 20/71

21 mean that the EU will have to reduce its greenhouse gas emissions by 20% by 2020, achieve a 20% share of renewable energy in the EU s total energy consumption by 2020 as well as increase the share of renewables in the transport sector by 10% by For Denmark, this will mean, see the proposed burdensharing principles, that renewables will have to account for 30% of the final Danish energy consumption by 2020 compared with 17% of the gross energy consumption in Energinet.dk wants to contribute to fulfilling the national and European climate targets and ensure security of supply, eg by supporting the use of biogas in Denmark, and also ensure the possibility of striking the optimum balance between renewable energy sources, biogas, natural gas and other more CO 2 - emitting fossil fuels. Better utilisation of the flexible regulating power of gas in an increasingly more wind-based energy system may be an element in this context New EU legislation in the pipeline In addition to the rules already adopted, the European Commission has proposed two new regulations which will directly impact the natural gas system. Notification of infrastructure investments The European Commission has presented a draft regulation on the Notification of investment projects in energy infrastructure. As a new initiative, the entire energy sector will now be under an obligation to report investments in infrastructure, including biogas and biofuels. Regulation on the security of natural gas supply The European Commission has proposed a new regulation on the security of natural gas supply. The draft regulation is presented as a direct consequence of the gas crisis between the Ukraine and Russia in the winter of 2008/2009. On the face of it, the regulation places stricter requirements on the security of supply, but it is still too soon to assess the consequences for Denmark as the draft has not yet been considered politically by the European Council or the European Parliament. If the draft regulation is adopted in its current form, emergency supply becomes a regional-european matter instead of a national matter, which means that security of supply in relation to Denmark and Sweden will, as a minimum, have to be assessed together. Energinet.dk will take a proactive approach to both the work on formulating the regulation and the subsequent implementation of the terms and conditions in the region to ensure that the special security of supply situation in Denmark is taken into account as appropriate. The regulation is expected to be adopted in 2010 and will then apply to the entire EU. 3.3 Gas quality project For the past 25 years, the Danish gas market has only received Danish North Sea gas. Danish North Sea gas is characterised by a very uniform composition and thus a very uniform gas quality. Danish natural gas has always had a high Wobbe index compared to the gas in adjacent systems. The explanation is that Doc /09, File 09/765 21/71

22 Danish gas has a relatively high content of ethane, propane and butane, which are not removed from the natural gas. Norway usually extracts these intermediate fractions, which are sold separately as, for example, LPG (Liquefied Petroleum Gas) or used as raw materials or fuel gas. Over the past eight years, the Wobbe index of distributed Danish gas has been in the range of kwh/nm 3 ( MJ/Nm 3 ). The Danish Gas Regulations allows the distribution of gas with a Wobbe index in the kwh/nm 3 range ( MJ/Nm 3 ). The quality of natural gas in Denmark will change when new supply lines are established. Similarly, customers are set to experience greater variations in gas quality. This applies regardless of whether future supplies will come from Norway, Russia, as LNG or as a mixture hereof from Germany. In 2009, the EU started establishing a common European gas specification for distributed gas. This work is based on the EASEE-gas specification, which is a recommendation from the European gas sector for a common specification for transition points between countries, which will be implemented in October 2010 if the recommendation is followed. Even though Energinet.dk for a number of year has worked for the implementation of the EASEE-gas specification in Denmark in 2010, it is doubtful whether this can be achieved. The work on a common EU specification is expected to last at least four to five years Gas from Germany via Ellund Energinet.dk s 2009 Open Season process showed considerable demand for increased capacity at the Danish-German border. Similarly, the market players demand for transport has in some periods shown a request for physical imports from Germany, most recently in October 2009, where supplies from Germany had to be rejected due to lack of pressure. Energinet.dk and the adjacent TSOs in the German DEUDAN system thus cooperate on enabling flows from Germany already in Following the expected establishment of increased capacity at the Danish-German border in October 2013, large volumes of German gas are expected to be imported in the long term, which in Egtved will be mixed with the natural gas from the North Sea. The composition of the gas from Germany will vary depending on the actual supply conditions, and the gas is typically a mixture of domestic German gas, Norwegian, Dutch and Russian gas. The gas from Germany is expected to have a considerably lower Wobbe index and calorific value as well as greater variations in these parameters than experienced by Danish gas consumers so far. As for other gas quality parameters such as relative density, sulphur content and dew points, German gas resembles Danish gas and will be within the limits set out in the Danish Gas Regulations and the Rules for Gas Transport. Physical gas supplies from Germany are expected to take place already at the end of 2010/at the beginning of This gas is expected to observe the applicable Danish specifications. Doc /09, File 09/765 22/71

23 The current Danish specification will limit the possibilities of importing gas. Energinet.dk is thus working in a targeted way towards implementing a broader common European specification in Denmark. Energinet.dk, in concert with the distribution companies, has appointed a working group for the purpose of ensuring that the necessary measures are implemented to guarantee safe gas use and the smooth transport of new and more varying gas qualities in the Danish natural gas system. The working group also includes representatives of the Danish Gas Technology Centre, the Danish Safety Technology Authority and the Danish Working Environment Authority. A number of activities have been launched, including boiler testing, reassessment of regulation procedures and a method for handling greater variations in calorific value for settlement purposes. These activities are expected to be completed at the beginning of 2010, after which the necessary measures will be implemented. Biogas is expected to be introduced in distribution systems and possibly in the transmission system as well. Today, any biogas in the transmission system must be able to meet current specifications and in the long term EU specifications equivalent to those applying to natural gas supplies. The introduction of biogas into the gas system is also expected to benefit from a broader common European specification than the current Danish specification. 3.4 Reducing the pressure in the North Sea The energy consumption for compression (fuel) and flaring in the Danish part of the North Sea accounts for approx. 4% of Danish gross energy consumption. On 21 February 2008, a political agreement was made on the Danish energy policy for According to the agreement, gross energy consumption must be reduced by 2% until 2011 relative to With a view to ensuring that the offshore sector can contribute to meeting the overall objective of the agreement, the Danish Minister for Climate and Energy and Danish Operators have agreed on an action plan to achieve more energyefficient oil and gas production. The purpose of this is to reduce the energy consumption and thus CO 2 emissions from the extraction of oil and gas. Fuel gas is used in the production of oil and natural gas and for increasing the pressure of the gas to be transported to the Danish market. By lowering the outlet pressure of the gas from the North Sea, the consumption of fuel gas and thus the emission of CO 2 can be reduced. The Danish Energy Agency, Danish Operators and Energinet.dk must together shed light on the possibilities for reducing the fuel gas consumed for compression. Transport of gas from the North Sea to the Danish transmission grid requires that a relatively high pressure (120 bar) is maintained in the offshore pipeline. The pressure in the Danish transmission grid is up to 80 bar. Today, there is a flow of approx. 20 million Nm 3 /day. The pressure of the North Sea gas can be reduced in two ways: Doc /09, File 09/765 23/71

24 1. Reducing the pressure in the Danish transmission grid from 80 to 70 bar, making it possible to reduce the outlet pressure of the gas from the North Sea correspondingly, thus reducing the capacity and the line-pack in the transmission system. 2. Partially moving the compression of the North Sea gas onshore by installing a compressor before the Nybro treatment plant. By the beginning of 2010, analyses must be made of the potential energy savings and costs. Factors influencing the choice of solution include the potential energy savings, the expansion towards Germany, security of supply requirements, capacity requirements, including the required injection capacity at the storage facilities, line-packing requirements, the costs incidental to new compressors, increased energy consumption when injecting gas with reduced inlet pressure into the storage facilities and the time perspective for phasing out the gas supply from the North Sea. 3.5 Biogas Possibilities of transporting and selling biogas in the natural gas grid According to calculations made by the Danish Energy Agency, biogas production in Denmark is expected to increase in the coming years from the current level of just below 4 PJ (corresponding to approx. 100 million m 3 of natural gas) to around 19 PJ in PJ correspond to 10% of current natural gas consumption of approx. 4 billion m 3, but as natural gas consumption is expected to decline in the coming years, biogas may end up accounting for a relatively larger share of gas consumption. In the longer term, the full potential is as much as 40 PJ of biogas, corresponding to around a quarter of Danish consumption. In Sweden, E.ON Sverige and the Swedish Gas Association estimate the potential to be PJ (corresponding to 3-4 billion m 3 of natural gas) around In this context, it should be noted that Swedish natural gas consumption today totals approx. 1 billion m 3. In Sweden, biogas is produced mainly from sludge and waste and will in future increasingly be produced by the gasification of wood, while in Denmark it is currently, as is also expected to be the case in future, based on liquid manure. The production of biogas reduces emissions of the greenhouse gases methane and dinitrogen oxide as they would otherwise have been released to the atmosphere and contributed more to the greenhouse effect than if the gases had been burnt and released as CO 2. In itself, this benefits the climate considerably. The use of biogas further reduces emissions when biogas replaces fossil fuels elsewhere. By collecting and burning biogas, a large part of the emission of greenhouse gases from agriculture is thus reduced. Moreover, the production of biogas also results in a lower content of organic substances in farmyard manure on the fields, which reduces the leaching of the nutrients nitrate and phosphorus to the benefit of the aquatic environment. Biogas provides, in other words, a number of climate and environmental benefits, and there is broad political backing for increasing the production of biogas in Denmark markedly. Doc /09, File 09/765 24/71