Shippers meeting
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UTG shippers’ <strong>meeting</strong><br />
11 Oct 2016<br />
Sergiy Makogon<br />
Director Executive<br />
Strategy and Business Development<br />
Ukrtransgaz
Agenda<br />
Key points<br />
1. Key indicators<br />
2. Recent changes in legislation<br />
3. New business rules of the TSO and SSO<br />
4. Areas of development<br />
5. New business opportunities for international traders and shippers<br />
6. Q&A session<br />
2
Technical characteristics of GTS and UGS facilities<br />
Slovak Republic<br />
13,2<br />
5,4<br />
Hungary<br />
Poland<br />
92,6<br />
14,5<br />
5,0<br />
1,5<br />
Romania<br />
4,5<br />
28,9<br />
Gas transit through the<br />
territory of Ukraine to<br />
Europe:142,5 bcm per year.<br />
Gas delivery from Europe to<br />
Ukraine: 21,4 bcm<br />
Belarus<br />
Length of pipelines, total<br />
Quantity of compressing stations<br />
Capacity of compressing stations<br />
3,5<br />
Moldova<br />
26,8<br />
6,0 5,5<br />
38 046 km<br />
72 (110)<br />
5442.9 MW<br />
Quantity of UGS facilities<br />
Total active volume of UGS<br />
facilities<br />
Quantity of gas distribution<br />
stations<br />
107,5<br />
Gas delivery from Russia and<br />
Belarus to Ukraine: 287 bcm<br />
per year.<br />
12<br />
25,5<br />
31 bcm<br />
1473<br />
13,0<br />
32,5<br />
Russia<br />
48,5<br />
6,0<br />
Entry<br />
Exit<br />
-<br />
46<br />
3
Peer-to-peer comparison<br />
Transportation volume for 2015 (bcm)<br />
Storage volume at the end of 2015 (bcm)<br />
31<br />
Maximum storage capacity<br />
101,4<br />
67,3 60,4 53,4 49,5<br />
16,5 16,2<br />
11,4<br />
15,8<br />
12,8<br />
8<br />
Volume of stored gas as of 31.12.2015<br />
6,6<br />
2,7 1,9<br />
Ukrtransgas Snam Rete<br />
Gas<br />
GRTgaz Eustream NET4GAS TRANSGAZ<br />
S.A.<br />
*Snam Rete Gas – part of SNAM Group; GRTgas – part of Engie Group; Net4Gas – part of RWE Group<br />
Source: ENTSOG, Naftogaz, official web-sites of companies<br />
GAZ-SYSTEM<br />
S.A.<br />
Ukrtransgaz Stogit Storengy RWE Gas Storage<br />
Source: GSE, Main activity – gas transportation<br />
Length of pipelines, 2014 (thousands of km)<br />
38,6<br />
32,3 32,1<br />
13,2 10,3<br />
3,8<br />
2,2<br />
Ukrtransgas Snam Rete Gas GRTgaz TRANSGAZ S.A. GAZ-SYSTEM<br />
S.A.<br />
Source: official web-sites of companies<br />
NET4GAS<br />
Eustream<br />
4
Natural gas transit through territory of Ukraine<br />
bcm<br />
98,6<br />
104,2<br />
84,2 86,1<br />
62,2<br />
67,1 70,0<br />
Russian gas accounted for 61% of EU<br />
pipeline imports in September*:<br />
It’s the biggest since at least 2012. Total increase<br />
for nine months comparing to prior year – 14%<br />
Gas receipts from Russia, Norway and North<br />
Africa in September– 21.3 bcm<br />
2010 2011 2012 2013 2014 2015 2016<br />
actual transit 2010-2015 forecast for 2016<br />
Transit to the EU via Ukraine – 6,6 bcm or 51% of Russian<br />
flow to the EU. Average daily transit – nearly 221 mcm<br />
Total increase of transit to the EU via Ukraine for<br />
nine months comparing to prior year – nearly 17%<br />
bcm<br />
2 042<br />
1 981<br />
Transit flow to Slovakia and Poland posted year on<br />
year growth - nearly 22% and 5% respectively<br />
46 981<br />
+16%<br />
54 977<br />
CIS<br />
EU<br />
Main threats for CEE countries:<br />
Nord Stream - 2<br />
9m 2015 9m 2016<br />
Turkish Stream<br />
Source: Gas Balance in GTS of PJSC “UKRTRANSGAZ”<br />
* ESGM 22.193 | 5 October 2016<br />
5
Natural gas consumption and imports in Ukraine<br />
bcm<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
66,3<br />
52,6 51,9<br />
57,6 59,3<br />
54,8<br />
50,4<br />
44,8<br />
42,6<br />
36,6<br />
32,9<br />
27,0<br />
28,0<br />
33,8 31,9 31,2 29,6 28,7<br />
19,5<br />
16,4<br />
12,7 12,5<br />
11,1 8,6<br />
2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2018F 2019F<br />
90%<br />
80%<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
Gas consumption, bcm (left axis) Gas imports, bcm (left axis) Imports share, % (right axis)<br />
Notes: data for 2015-2019 does not include consumption on the temporarily occupied territory of Ukraine<br />
6
Natural gas consumption dynamics in Ukraine, 2004 - 2015<br />
bcm<br />
40<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
-65%<br />
-1%<br />
-31% -55%<br />
-60%<br />
5<br />
-<br />
Industry Households District heating<br />
and electricity<br />
enterprises<br />
Factors of consumption reduction:<br />
Fuel gas<br />
- Increase of gas price<br />
- RF aggression at the East & occupation of Crimea<br />
- Deterioration of economic environment => decrease of industry production<br />
- Natural condition: temperature in heating season<br />
- Regulatory factor (change in standard consumption rates for householders without heat meters)<br />
Further reduction of gas consumption is possible due to energy efficiency measurements in<br />
commercial and residential sectors.<br />
7
Structure of imports to Ukraine<br />
2013 2014 2015<br />
2016 (forecast)<br />
Reduction of Import<br />
Reduction of Import<br />
Reduction of Import<br />
Russia<br />
Russia<br />
Russia<br />
Europe<br />
Europe<br />
Europe<br />
Europe<br />
Import for 9m 2016<br />
TOTAL<br />
from Europe<br />
from Russia<br />
27.9 bcm<br />
2.1 bcm<br />
25.8 bcm<br />
TOTAL<br />
from Europe<br />
from Russia<br />
19.5 bcm<br />
5.0 bcm<br />
14.5 bcm<br />
TOTAL<br />
from Europe<br />
from Russia<br />
16.4 bcm<br />
10.3 bcm<br />
6.1 bcm<br />
TOTAL<br />
from Europe<br />
from Russia<br />
12.7 bcm<br />
12.7 bcm<br />
0 bcm<br />
7,5%<br />
25.6%<br />
37.2%<br />
37.2%<br />
92.5% 74.4%<br />
62.8%<br />
100%<br />
8
Utilization of entry capacities to Ukraine at EU border<br />
Annual capacity at EU borders vs Annual demand of import gas<br />
bcm 28,0<br />
21,4<br />
19,5<br />
16,6<br />
18,2<br />
16,4<br />
12,7<br />
6,9<br />
EU country<br />
Total possible capacity to EU neighboring countries<br />
bcm / year<br />
Physical<br />
capacity<br />
Virtual<br />
capacity*<br />
Utilization of exit capacity from<br />
Ukraine to EU country<br />
Poland 1,5 3,7 74%<br />
Hungary 5,4 5,9 45%<br />
Slovakia 14,5 37,7 41%<br />
January 2014 September 2014 January 2015 September 2016<br />
Annual demand for import gas<br />
Annual entry capacity from EU<br />
Total 21,4 47,3<br />
Notes: * estimates based on actual physical gas flows from Ukraine to Poland, Hungary, Slovakia<br />
in 2015<br />
Gas in storage, Hungary mcm<br />
Capacity utilization of physical capacity at EU borders<br />
Poland<br />
mcm mcm mcm<br />
Slovakia<br />
Monthly capacity<br />
Used capacity<br />
500<br />
450<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
-<br />
450 140<br />
125<br />
1 400<br />
120<br />
1 200<br />
100<br />
1 000<br />
80<br />
800<br />
60<br />
600<br />
40<br />
400<br />
20<br />
200<br />
-<br />
January - September January - September January - September<br />
-<br />
1 200<br />
9
Structure of imports to Ukraine<br />
Import of natural gas to Ukraine, mcm<br />
RU<br />
HU<br />
PL<br />
SK<br />
12 months 2015<br />
9 months 2016<br />
6 140<br />
RU 0<br />
464<br />
HU 508<br />
149<br />
PL 599<br />
9 702 SK<br />
5 220<br />
TOTAL 16 455 mcm TOTAL 6 327 mcm<br />
Number of counterparties for importers<br />
Gas in storage, mcm<br />
36<br />
Number importers at EU borders<br />
18<br />
18<br />
19<br />
3<br />
22<br />
2015 2016<br />
2015 2016<br />
10
Agenda<br />
Key points<br />
1. Key indicators<br />
2. Recent changes in legislation<br />
3. New business rules of the TSO and SSO<br />
4. Areas of development<br />
5. New business opportunities for international traders and shippers<br />
6. Q&A session<br />
11
Market liberalization: ultimate goal until 2018<br />
Key milestones achieved on the way to the open and integrated market<br />
2015: Increase of physical reverse flow form EU by 20% and now amounts 20 bcm/y => entry capacities at the<br />
western border exceed import needs<br />
Apr ’15:<br />
Oct ’15:<br />
Oct ’15:<br />
Nov – Dec’15:<br />
Nov ’15:<br />
Adoption of the primary legislation which compliant with the Third Energy Package<br />
Implementation of OECD Principles for state-owned enterprises is launched at Naftogaz. Independent<br />
Supervisory Board in place.<br />
Ukrtransgaz offered to private companies capacities at cross-border points to import gas from Europe<br />
Adoption of the secondary legislation which is compliant with the Third Energy Package (Network Codes<br />
(CAM, CMP, INT), Rules of Supply, tariffs, Security of supply rules and action plan, etc.)<br />
Naftogaz ceased gas imports from RF => procurement of 100% of imported gas from the EU<br />
May ’16 Gas price increase in 4 times for households, district heating and budget organizations. Goal pursued =><br />
import parity price.<br />
Jul ’16:<br />
Adoption of the plan of unbundling of the TSO from the incumbent “Naftogaz”<br />
Dec ’16: Plans to decrease security gas stock from 50% to 10%<br />
12
Independent<br />
Regulator<br />
Independent<br />
TSO<br />
Regulation<br />
based on EU<br />
rules<br />
Market liberalization: ultimate goal until 2018<br />
To be achieved<br />
Q4 ’16 - Q1 ’17:<br />
Q1-Q2 ’17:<br />
Q2 ’17:<br />
Q1-Q3 ’17:<br />
Q2 ’17:<br />
Q1-Q3 ’17:<br />
Jan ’20:<br />
New law on the independent Regulator (EU complaint)<br />
Complete the unbundling of the TSO & certification<br />
Free market gas pricing for all customers of natural gas<br />
Bring relations with Gazprom to the EU market standards via negotiations or Stockholm arbitration<br />
procedure<br />
Improvement of secondary legislation, including transition from monthly balancing to daily balancing.<br />
Opening of a daily balancing market<br />
Transition from m3 to energy measurement units - kWh<br />
Decrease total import needs to 0-5 bcm/y due to increase<br />
of local production & energy efficiency measurements<br />
Efficient gas market<br />
3
Agenda<br />
Key points<br />
1. Key indicators<br />
2. Recent changes in legislation<br />
3. New business rules of the TSO and SSO<br />
4. Areas of development<br />
5. New business opportunities for international traders and shippers<br />
6. Q&A session<br />
14
New business model of the TSO<br />
Key elements<br />
1. Full entry/exit system and RAB tariffs: decoupling Entry/Exit (but no tariffs at the internal points)<br />
2. VTP (but no trading platform)<br />
3. Monthly balancing, balancing services from Naftogaz<br />
4. Standard transportation contract (no tariffs an internal points)<br />
Products:<br />
- Firm<br />
- Interruptible<br />
- RF/ Conditional Capacity<br />
5. Standard storage contract (but no tariffs)<br />
Products:<br />
- SBU<br />
- Monthly products<br />
- Individual products<br />
Temporary storage contract<br />
- No capacities, just physical volumes<br />
- 112 UAH per 1000 cm per storage cycle<br />
15
New business model of the TSO<br />
Key elements<br />
1. Financial guarantees<br />
- 100% prepayment for capacities at borders<br />
- 20% financial guarantee based on the monthly nomination<br />
- 50% security gas stock for suppliers<br />
2. Capacity allocation<br />
entry/exit at the border -> shippers<br />
entry/exit to UGS -> SSO<br />
Exit to DSO -> DSO<br />
Entry from production -> production company<br />
Exit to direct consumer -> direct consumer<br />
3. Capacities (yearly, quarterly, monthly, day ahead)<br />
- Firm<br />
- Interruptible<br />
- Reverse flow\ conditional<br />
4. Auctions for cross border points<br />
16
New business model of the TSO<br />
Key elements<br />
1. Nominations<br />
- Monthly (from 15 th till 20 th M-1)<br />
- Daily (by 13:00 UTC)<br />
2. Renominations<br />
From 16:00 UTC D-1 till 02:00 UTC D<br />
3. Allocations<br />
VTP, UGS, cross-border IP (with OBA): allocation = nomination<br />
4. Commercial balancing - monthly<br />
Imbalance = inputs – offtakes<br />
By 10 th – initial imbalance calculation<br />
By 12 th - self balancing<br />
By 14 th - invoice for balancing services<br />
- Positive imbalance -> injection into UGS<br />
- Negative imbalance -> 1,2 * basis price on gas<br />
http://utg.ua/en/utg/business-info/documents.html<br />
17
Agenda<br />
Key points<br />
1. Key indicators<br />
2. Recent changes in legislation<br />
3. New business rules of the TSO and SSO<br />
4. Areas of development<br />
5. New business opportunities for international traders and shippers<br />
6. Q&A session<br />
18
Areas of development<br />
Key areas<br />
1. Legislation<br />
- Full adoption of EU regulations and codes<br />
- Implementation of daily balancing (BAL code)<br />
- TSO unbundling & certification<br />
2. Infrastructure<br />
- IT system implementation (Capacity allocation and commercial dispatching)<br />
- Signing direct interconnection agreements with neighboring TSOs (nominations, matching etc)<br />
- Network modernization (UPU, CS BAR)<br />
- Network optimization<br />
- PL-UA interconnector<br />
3. Business<br />
- Trading platform and gas exchange<br />
- New services<br />
19
Agenda<br />
Key points<br />
1. Key indicators<br />
2. Recent changes in legislation<br />
3. New business rules of the TSO and SSO<br />
4. Areas of development<br />
5. New business opportunities for international traders and shippers<br />
6. Q&A session<br />
20
New opportunities for Western shippers<br />
1. Open gas market for industry segment<br />
• nearly 11 bcm/y, Naftogaz’s share – only 7%<br />
• since Q2 2017 open gas market for all consumers of natural gas => 33,8 bcm/y<br />
2. Short-haul services<br />
• transportation services between PL, SK, HU, RO via Ukraine<br />
• transportation services from border to UGS and vise verse<br />
1200 km<br />
3. Huge available storage capacity<br />
• as for now storages are filled at 46% (14,4 bcm/30,8 bcm)<br />
16,8 17,1<br />
1200 km vs 60 km<br />
7,7 8,5<br />
2014/2015 2015/2016<br />
Gas in UGS at the end of injection season<br />
Gas in UGS at the end of withdrwal season<br />
21
Naftogaz’s share in the non-regulated segment<br />
Structure of consumption<br />
Naftogaz’s share in industry consumption<br />
Budget organization<br />
Other<br />
Naftogaz<br />
Fuel gas<br />
7,6%<br />
30%<br />
Other suppliers<br />
District heating<br />
21%<br />
11% 1% 34%<br />
8m 2016<br />
19,7 bcm<br />
Industry<br />
92,4%<br />
8m 2016<br />
6,0 bcm<br />
36%<br />
Households<br />
18%<br />
10%<br />
4% 1%<br />
2015<br />
33,8 bcm<br />
20,7%<br />
2015<br />
10,9 bcm<br />
33%<br />
79,3%<br />
22
Russian gas price for Naftogaz and market prices<br />
600<br />
USD / ’000 m 3 0<br />
500<br />
400<br />
300<br />
200<br />
100<br />
Контрактна Russian gas ціна price Газпрому for Ukraine (according to the contact with Gazprom)*<br />
Ціна Russian Газпрому gas price з урахуванням for Ukraine погоджених with agreed discounts знижок (в(including т.ч. по "зимовим “winter packages”)*<br />
пакетам")<br />
Ціна NCG на price рівні netted "хаб мінус back транспорт"*<br />
to Eastern Ukrainian border<br />
Ціна NCG на price рівні plus "хаб cost плюс of транспорт"<br />
transportation to Western Ukrainian border<br />
Source: Bloomberg. Energy conversion for NCG as 1 tcm = 10,41 MWh (GCV) - for calorific parity with Gazprom's price for Naftogaz<br />
* – Gazprom’s price for Naftogaz doesn’t include transportation cost of entry to Ukraine (USD 12,47/1000 m 3 )<br />
23
Natural gas price for Naftogaz and Ukrainian population<br />
USD/1000 m3<br />
424,5<br />
397,0<br />
293,8<br />
277,1<br />
210,5<br />
188<br />
96 97<br />
64<br />
81<br />
188<br />
43 43 40 57<br />
2012 2013 2014 2015 September 2016*<br />
Heating Households Average іmport price for Naftogaz<br />
Average import price include entry tariff to Ukrainian GTS (12 USD/1000 m3)<br />
*Average import price for September is equal to the average import price for 1Q 2016 (there was not import of natural gas in 2Q, for 3Q<br />
information is not available as for now)<br />
24
New opportunities for Western shippers<br />
1. Open gas market for industry segment<br />
• nearly 11 bcm/y, Naftogaz’s share – only 7%<br />
• since Q2 2017 open gas market for all consumers of natural gas => 33,8 bcm/y<br />
2. Short-haul services<br />
• transportation services between PL, SK, HU, RO via Ukraine<br />
• transportation services from border to UGS and vise verse<br />
1200 km<br />
3. Huge available storage capacity<br />
• as for now storages are filled at 46% (14,4 bcm/30,8 bcm)<br />
16,8 17,1<br />
1200 km vs 60 km<br />
7,7 8,5<br />
2014/2015 2015/2016<br />
Gas in UGS at the end of injection season<br />
Gas in UGS at the end of withdrwal season<br />
25
Technical characteristics of GTS and UGS facilities<br />
28,9<br />
Belarus<br />
6,0 5,5<br />
Gas delivery from Russia and<br />
Belarus to Ukraine: 287 bcm<br />
per year.<br />
Poland<br />
5,0<br />
1,5<br />
107,5<br />
25,5<br />
13,0<br />
Russia<br />
48,5<br />
46<br />
Slovak Republic<br />
92,6<br />
14,5<br />
13,2<br />
5,4<br />
Hungary<br />
Romania<br />
4,5<br />
Gas transit through the<br />
territory of Ukraine to<br />
Europe:142,5 bcm per year.<br />
Gas delivery from Europe to<br />
Ukraine: 21,4 bcm<br />
3,5<br />
Moldova<br />
26,8<br />
32,5<br />
6,0<br />
Entry<br />
Exit<br />
-<br />
26
New opportunities for Western shippers<br />
Short-haul routes under assessment<br />
• HU-SK 65 km<br />
• HU-RO 56 km<br />
• PL-SK 146 km<br />
• PL-RO 204 km<br />
• PL-HU 191 km<br />
• SK-RO 96 km<br />
• PL – UGS 42 km<br />
• SK – UGS 128 km<br />
• HU – UGS 158 km<br />
• RO - UGS 143 km<br />
27
New opportunities for Western shippers<br />
Trans-Balkan Pipeline<br />
• GR-BG-RO-UA<br />
• Capacities available at T-1 pipeline (~2 bcm)<br />
• Reverse flow will be available soon<br />
• Bi-directional from 2019 (up to 5.3 bcm)<br />
• Technically UTG can execute bi-directional<br />
flow between Western borders (SK, PL, HU)<br />
and Southern borders (RO, BG*, GR*, TR*) up<br />
to 20 bcm<br />
28
New opportunities for Western shippers<br />
1. Open gas market for industry segment<br />
• nearly 11 bcm/y, Naftogaz’s share – only 7%<br />
• since Q2 2017 open gas market for all consumers of natural gas => 33,8 bcm/y<br />
2. Short-haul services<br />
• transportation services between PL, SK, HU, RO via Ukraine<br />
• transportation services from border to UGS and vise verse<br />
1200 km<br />
3. Huge available storage capacity<br />
• as for now storages are filled at 46% (14,4 bcm/30,8 bcm)<br />
16,8 17,1<br />
1200 km vs 60 km<br />
7,7 8,5<br />
2014/2015 2015/2016<br />
Gas in UGS at the end of injection season<br />
Gas in UGS at the end of withdrwal season<br />
29
Underground gas storages<br />
30.8bcm<br />
technical capacity<br />
260mln|day<br />
max withdrawal rate<br />
252mln|day<br />
max injection rate<br />
30
Thank you very much for your attention!
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