11th GAS FORUM - Energy Community Ljubljana, September Turkey potential gas market and trading opportunities

Transcription

1 11th GAS FORUM - Energy Community Ljubljana, September 2016 Turkey potential gas market and trading opportunities European Federation of Energy Traders Jan Haizmann EFET Board Member and Legal Committee Chair 1

2 Cacacaca Overview Introduction to EFET Why do we have hubs? Where is liquidity developing in Europe? EFET Gas Hub study Outlook for Turkey outline of structural and market reforms Current challenges 2

3 The role of EFET The voice of energy traders in Europe We promote competition, transparency and open access in the European energy sector. European Federation of Energy Traders (EFET) Represents around 120 energy trading companies, operating in 26 countries Main activities include: Promotion of Wholesale Energy Trading through advocacy with European Institution and national Governments Promoting Legal standard documentation for physical OTC market ( - service company operating the EFET-standard, IT-standardisation and electronic reporting service (err) -EFET Academy 3

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6 Criteria for Market Development Market Confidence 1 Entry New Players Diverse Players 2 Standard Products Standard Contracts 4 3 Liquidity and Choice of Products Any action creating market confidence within companies such as reliable price discovery, neutral price reporting, entry of new and diverse market particpants will help liquidity. A market cannot develop based on incumbent and vertically integrated stryctures as they hamber choice and flexibility. 6

7 Infrastructure: storage, pipelines Role of the Hub Liberalized gas market Knowledge Trust Hub operator/ exchange (IT) Gas supply: diversification 7

8 Hub Rationale Why do we have hubs? Physical balancing Commercial Optimisation Price Transparency Risk Management Cacacaca. Allow larger numbers of buyers and sellers to meet in one place to buy and sell to intermediate 8

9 What makes a good hub? Underlying conditions for trade: Multiple buyers and sellers Access to capacity to bring gas to the hub Multiplicity of gas supplies / sinks including storage Counterparties with imbalances to trade at the hub (customer churn, new supply contracts, LNG, gas release) Market-based balancing Good hub design: Title transfer Backup/backdown to ensure firmness Clearly defined role of incumbent to support trading Price disclosure Standardised terms and conditions Well-designed, transparent network access terms, harmonised with interconnected systems Enabling legislation: customer eligibility, fair network access (unbundling), stability through transparency & governance, lack of cross-subsidisation between monopoly and competitive businesses. Network access terms: title transfer point(s), secondary capacity markets, reasonable balancing terms, reasonable credit terms, emergency procedures, clear definition of Force Majeure 9 9

10 Impact of gas hub activity The pricing of optionality becomes more explicit Instead of buying large amounts of embedded optionality that is not required it may become more economic to buy fixed amounts on different timescales and only the required level of optionality Forecasting accuracy is rewarded Price responsiveness and demand management reveal value Price transparency Parties can see where the market is and have confidence to trade Long and short positions can be managed through multiple contracts Standard products emerge Typically monthly and day ahead will develop first Quarters, Seasons, Cal Yr, Gas Yr, WE/WDNW, Within-day emerge Indexation opportunities arise Volume risk is managed through trading rather than Take or Pay Bid/Offer spread narrows as hub becomes more competitive 10

11 Where is trading developing in Europe? Traded volumes at European Gas Hubs [TWh], source: EC Quarterly Report on European Gas Markets Q1/2015 Some hubs are functioning well 11

12 European gas price correlation Price convergence across six hubs Source: The evolution of European traded gas hubs (OIES) Heather Cross-correlations between OTC D-1 prices Source: The cost of price de-linkages between European gas hubs, Petrovich (OIES) 2015 High correlations across geographical markets 12

13 Gas price in Turkey follows different track Source: ICIS 13

14 Right market design enables hub development Total score of good hub design features, sequence not taken into account EFET Hub Study, Q2/ Wide variations; NW Europe most advanced 14

15 Turkey s geographical position Turkey has access to major supply sources through 4 import pipelines and 2 LNG regasification terminals. WEST LINE - BOTAŞ 4 bcm Private-I 4 bcm Private-II 6 bcm 2043 BLUE STREAM - BOTAŞ 16 bcm 2028 AZERBAIJAN - BOTAŞ 5.4 bcm SOCAR* 1.2 bcm 2022 ALGERIA - BOTAŞ 4 bcm 2024 NIGERIA -BOTAŞ 1.2 bcm 2021 LNG (Spot ) IRAN - BOTAŞ 10 bcm 2026 *Note: 1.2 bcm is a volume transfer from Azeri BOTAŞ contract to Socar. 15

16 Turkish Gas Imports ( ) (bcm) Share (2014) Russia % Iran % Azerbajan % Algeria (LNG) % Nigeria (LNG) % Spot LNG % Total Source: Energy Market Regulatory Authority 16

17 Gas Import LT-Agreements Contract Date of Signature Date of Operation Duration (Years) Volume (Plateau bcma) Date of Expiration Algeria (LNG) Apr 1988 Aug (extended) Nigeria (LNG) Nov 1995 Nov Iran Aug 1996 Dec Russia Dec 1997 Feb Russia (West) Feb 1998 Mar Azerbaijan Mar 2001 Jul Source: Energy Market Regulatory Authority 17

18 Gas market shares in Turkey Competition Authority needs mandate 18

19 Structural Changes Physical Infrastructure - Develop physical infrastructure - System currently lacks flexibility - Cross border capacity development should be strengthened - Storage capacity requires increase - LNG facilities for peak demand could help SoS Regulatory Framework - Energy Community has conducted a study showing that the regulatory gap between the EU and Turkey can be closed easily - Turkey may wish to upgrade its position in the Energy Community - EMRA needs mandate to support market transition - Competition Authority needs a mandate to overlook transition for the incumbent Independent TSO Needed Unbundeling of BOTAS is initial milestone Appropriate capacity-booking model (entry/exit model) has been conceptionally introduced to BOTAS - Effective balancing mechanism have been conceptually explained to BOTAS - Effective nomination processes - Imbalance fees are currently not market based - Integrated storage injection and withdrawal process is currently missing -Transparent tariff-setting process needed Commercial and Market Conditions - Free day-ahead and intraday price assessment mechanism - Standard physical contracts have been conceptually explained, EFET Agreement has been translated into Turkish - No destination clauses for gas supplies - Transparent price-discovery mechanisms through platforms is prepared -Good synchronization between balancing, spot and forward markets has been analysed -Stable financial and credit mechanisms - Phasing out of current subsidy practices needed but not yet undertstood 19

20 Gap: Status Quo & Requirements Energy Community has prepared Gap Analysis Current Framework Subsidized Tariffs are set by the government, limited market fundamentals Major Requirements Energy Community Report on Turkey sets out requirements for integration - Gas price should reflect demand/offer - Phasing out of regulated tariffs BOTAŞ controls 80% of wholesale volumes and import Insufficient infrastructure BOTAŞ is fully integrated through the value chain - No restrictions for gas imports - Attractive and reliable regulatory framework to incentivize necessary infrastructure investments such storage & LNG terminals - Integration in the EU energy market should be the aim Non-discriminatory TPA to pipelines Breaking-up of BOTAS is needed- Separation between TSO and Trade/Supply EU experience is available to BOTAS 20

21 Regional Integration delivers growth RUSSIA 44.8 m bcm - European Trading Hubs leave gap for TR Hub LNG EPİAŞ IRAQ 3.2 m bcm Kuveyt 1.8 m bcm Azerbaijan 0.85 m bcm Iran 29.6 m bcm Turkmenistan 7.5 m bcm - Trading OTC s via Brokers already enabled for power - Energy Exchange planned Bubble size is indicative of the size of reserves QATAR 25.4 m bcm Saudi Arabia 7.8 m bcm EMIRATES 6.5 m bcm - EU/TR Integration requires same rules If Turkey can implement structural reforms, the Turkish natural gas market can be integrated with European gas market and generate growth for the whole region and Turkey at the same time. 21

22 Future Gas Demand 22

23 Current challenges BOTAŞ Unbundling Process needs implementation Dominant Position of BOTAŞ needs Competition Authority Gas Market Liberalisation Act stuck Gas Market Design not in line with electricity reform Transparent Price Discovery is missing Lack of fair balancing market, Standardised trading products and contracts Create Liquidity - Volume Release? Reform attracts investment into infrastructure Knowledge Transfer from Europe has started to build confidence in market oriented environment! 23

24 Thank you for your attention! European Federation of Energy Traders Dr. Jan Haizmann Rue Le Corrège 93 B-1000 Brussels - Belgium j.haizmann@efet.org 24