E.ON Ruhrgas GB 2005 E - E.ON Ruhrgas AG

Cover Platform worker on a
drilling rig in the Njord field in the
Norwegian North Sea. It is
E.ON’s strategic goal to cover up to
20% of its gas supplies from its
own sources in the long term. The
stake in the Njord field was increased
to 30% in 2005 (see page 30).
Magazine
02 Foreword of the Chairman of the Executive Board
06 Concentration and Competition on the Gas Market
Geopolitical Developments/Lessons from the UK Market/
New Challenges
11 Security of Supply
Key Issue of Energy Supply
17 Growth Beyond the Borders of Germany
Foreign Sales Increasing – International Shareholdings
20 Country Portrait: Hungary
Hub for the European Gas Market
23 Underground Gas Storage Facilities
Important Function for Gas Supplies in Line with Demand
27 LNG
Flexible Supplement to Pipeline Gas
30 Gas from Our Own Sources
Involvement in Production
34 Potential for Biomass
Natural Gas Plus Biogas: A Good Mixture!
40 Report on the Industry: Natural Gas on the Energy Market
in 2005
Overview of the Global Situation
51 2005 Financial Year
01

02 Foreword of the Chairman of the Executive Board
Ladies and Gentlemen,
Today, natural gas is a firm part of our daily life
and everybody takes its continual availability
for granted. However, the dispute between
Russia and Ukraine about gas deliveries at the
turn of 2006, the unstable supply situation in
the UK and delivery restrictions in other European
countries have caused the first doubts.
Given the development of demand and geopolitical
uncertainties, secure supplies of energy,
the elixir of life for our industrial society, are of
fundamental importance for economies which
depend on energy imports.
German gas reserves will keep declining in
the years to come. Today, they already cover
less than a fifth of domestic consumption.
Germany and Europe’s dependence on imports
will continue to grow. At the same time,
energy forecasts predict that natural gas consumption
will also increase further in all Euro-
pean countries. Although Europe has already
secured considerable volumes of gas under
long-term contracts to meet future demand,
large quantities still have to be procured.
And Europe is in fierce competition with Asia
and the USA for the gas reserves which can
be mobilised in the medium term. All this is
nothing new, but competition and prices have
previously always been more important than
these aspects. Therefore, it is correct to speak
of a paradigmatic change in public discussion.
Nevertheless, politicians and consumers
still expect the gas industry to guarantee
continual, uninterrupted supplies of gas for all
customers and to secure these deliveries in
the long term. And the gas is to be reasonably
priced as well. Now that people are becoming
increasingly aware that security of supply
has its price, demands and reality are coming
closer together. Nevertheless, there are still
some blatant contradictions: Although politicians
want the gas industry to secure supplies
on the basis of long-term supply contracts with
producers, the Federal Cartel Office wishes to
severely restrict long-term contracts between

“Security of supply is
not something which can
be taken for granted
but demands constant
attention, given the
changing and increasingly
global markets and the
growing impact of geo-
political conditions.”
German gas suppliers and their customers and
is looking at the issue from a narrow national
viewpoint whilst we, in our efforts to purchase
natural gas, are increasingly faced with not
only European but also global challenges.
In the past few months, E.ON and E.ON
Ruhrgas have made substantial contributions
towards greater competition. From the disclosure
of the gas price calculation for residential
customers to the introduction of the new
grid access system, ENTRIX 2, which offers
much more customer service, E.ON has certainly
generated great momentum. Furthermore,
the German gas industry successfully
negotiated an agreement with the Federal
Network Agency on network access within
the timeframe set. In all these efforts to stimulate
national competition, however, we must
not forget that we have to orientate ourselves
to international energy market standards. The
fragmentation of the supply side of the gas
industry in Germany does not lead to greater
security of supply and our national bargaining
power on the demand side is not strengthened.
Foreword of the Chairman of the Executive Board
It must be ensured that short-term measures
do not result in a long-term policy which
focuses on just one goal. The United Kingdom
is an example of where such regulated liberalisation
geared to short-term goals can lead.
In the UK, considerable infrastructure and
capacity deficits leading to supply bottlenecks
and sharp price increases have now become
apparent.
Last year, we showed our willingness to
continue to make a substantial contribution
towards security of supply in Europe by signing
a basic agreement for the construction
of the North European Gas Pipeline (NEGP),
which will run through the Baltic Sea. In addition,
E.ON Ruhrgas is also looking to establish
new LNG capacities and examining several
LNG terminal locations in northwestern Europe
as well as in the Adria. Various projects will further
diversify our supply portfolio and secure
long-term gas supplies.
In this annual report, we would like to shed
light on the complexity of the gas industry by
giving people information and making issues
transparent. We explain the situation in the
world gas trade, inform the public about our
own gas exploration and production activities,
present our LNG project in Wilhelmshaven,
show the importance of gas storage facilities
for security of supply in Germany, report on
our latest acquisition in Hungary and describe
the market potential of biogas. Our report is
interspersed with eye-catching, double-page
photos of magazines showing advertisements
from our product advertising campaign
combined with short editorial statements on
central gas industry issues. The message is:
In today’s world, we may take natural gas for
granted, but we shouldn’t.
I hope you find our annual report makes
interesting reading.
Yours, Burckhard Bergmann
03

06 Magazine
Concentration and Competition
on the Gas Market
Geopolitical Developments/Lessons from the UK Market/New Challenges
The dispute between Russia and Ukraine at the beginning of 2006, when gas deliveries
were temporarily reduced, made one thing clear: An energy policy concentrating
one-sidedly on the competitive framework for an economy dependent on energy imports
is not appropriate. Instead, the focus must be on mobilising adequate and secure
energy resources for one’s own market.
Energy Interests in the World Procurement
of energy resources is becoming more fraught
with conflict worldwide. The unstoppable
rise of China and India to become influential
economic powers with unbridled thirst for
energy is confronting the world with major
challenges. Beijing is investing hundreds of
billions in oil and gas-rich regions, thus pitting
itself against the USA, which has hitherto
been the country that has most systematically
pursued its energy interests in the world. This
prompts some basic questions:
• Is the notion of a free world energy market,
embedded in the globalisation of a shrinking
world with ever more closely interlinked
economic and energy policies, proving to
be an illusion?
• Are supply and demand in the energy sector
increasingly being dominated by political
interests?
• Are energy reserves being renationalised?
• Are secure energy supplies for Europe
and Germany really assisted by one-sided
liberalisation of the energy industry in
energy-importing countries?
Speech held by Burckhard Bergmann, Chairman of the Executive Board of E.ON Ruhrgas AG,
at the 13 th Handelsblatt-Jahrestagung “Energiewirtschaft 2006” on 17 January 2006
There can be no doubt that global conditions
on energy markets now differ fundamentally
from those existing when liberalisation policies
were started a good 15 years ago. This will
inevitably affect the targets, instruments and
measures of national and European liberalisation
policies. In particular, they cannot be
successfully determined by companies and
politicians in the narrow confines of national
anti-trust legislation.
Against this background, it would also be too
simplistic to cling blindly to the idea that the
model employed in the United Kingdom is a
paragon of economically efficient competition
conducive to greater prosperity.
UK Regulation: From Self-Sufficiency to
Heavy Import Dependence In the early
1990s, conditions were ideal for autonomous
national regulation:
• state monopoly companies were privatised,
• supply and demand were under national
jurisdiction
• there was a high degree of self-sufficiency
• supplies from the North Sea were plentiful
and
• there were captive producers on the
national market.

The consequences were that on the one hand,
as long as there were secure supplies from
indigenous sources, advantages over the Continent
were enjoyed:
• lower gas prices
• little need for investment
• greater freedom of choice for customers
• more transparency.
On the other hand, once indigenous gas
production declined, splendid isolation was
superseded by global competition to obtain
resources.
That means, on the price side, high prices and
great price volatility; at present, the UK has
the highest spot gas prices although it is still
the fourth largest gas-producing country.
This complete turnaround also led to strong
seasonality of gas prices, which meant high
prices at times of high consumption.
On the infrastructure side, non-discriminatory
network access developed but at the price
of inadequate tariffs, in turn posing risks for
the functioning and safety of the gas infrastructure.
The expectation that high prices guarantee
secure and sufficient supplies at times
of scarcity is not borne out by reality. In an
imperfect market, high prices are not able
to physically balance supply and demand in
the short run. The necessary development of
gas infrastructure and signing of purchase
contracts with the big gas producers are not
achievable on a short-term basis. There simply
is no “online link” between the gas price
and supply.
Conclusions from the UK Developments
The UK regulatory model of the past had very
specific conditions that no longer exist as such
(self-sufficiency). It is therefore not a blueprint
for the Continental gas industry. Progress
towards greater security of supply for the UK
gas market cannot genuinely be made by the
Magazine
Development of natural gas supplies in the EU 25
in billion m 3
600
525
450
375
300
225
150
75
0
2005 2010 2015 2020
LNG share
of imports 10% 20% 20% 22%
provisional data for 2005
* of which: Nigeria 3%, Qatar 3%
basis for imports: contracted volumes and prospective contract extensions
Russia without volumes via North European Gas Pipeline (NEGP) which are
included in advanced projects
UK simply demanding contributions to, and
installations for, its security of supply from the
Continental gas industry.
It can be assumed that the two gas market
models will draw closer together:
• The UK will make greater efforts and
accordingly modify its regulatory model to
achieve a sustainable improvement in its
security of supply. This will make it possible
to overcome the present state described
by UK Energy Minister, Malcolm Wicks,
with the words “We have no risk-takers”.
• The Continental gas industry will have to
take further steps towards liberalisation
and greater transparency.
Starting Situation in Germany and Europe:
Think Global, Act European. The continuing
rise in consumption, Europe’s declining indigenous
gas production and the considerably
increased importance of LNG are posing new
challenges for the entire European gas industry.
They are the huge investment needed to
develop new fields and link them up via new
infrastructure projects, and global competition
between Europe, the USA and Asia as gasimporting
regions.
supply gap
advanced projects
other non-EU imports*
Algeria
Russia
Norway
other internal EU trade
Netherlands
indigenous production
for domestic use
07

08 Magazine
Market concentration on the European natural gas markets – midstream*
market share of the biggest supplier in %
100
75
50
25
0
average
UK Spain Italy Germany Denmark Austria
Sweden Netherlands Ireland France Belgium
25% 97% 40% 60% 68% 40% 50% 91% 85% 92% 90%
* imports and production
source: European Commission, 4 th benchmarking report
Under these conditions, safeguarding
adequate gas supplies is not possible within
the narrow confines of national anti-trust legislation.
Nobody can deny the simple fact that
the European gas procurement market simply
does not work according to the rules of
German competition authorities but according
to the rules imposed on import-dependent
Europe by a narrow and powerful oligopoly of
producers.
What are national competition authorities
criticising or expecting?
Company size: The creation of a countervailing
power vis-à-vis strong producers, the
shouldering of long-term high-risk investments
and the pooling of large purchase volumes
over lengthy supply periods for reasons of
economies of scale and risk-sharing, all require
that companies operating on the global gas
market should have a certain minimum size.
Competition within Europe does not primarily
occur at the local level, but also especially
at the wholesale and import level. Only large
companies can hold their own in this Champions
League in the international and European
arenas.
Nationally, E.ON may be considered a large
company, but in the European and certainly in
the global context we are but one player
among many.
This also becomes clear when looking at
midstream and downstream market concentration
in Germany compared with the EU; in
this respect, too, there is no need for national
action.
Moreover, a company’s market influence is,
as is generally known, not determined exclusively
by its market share but also, inter alia,
by the strength of its rivals, technological capabilities
and network access. The competitive
situation in Germany shows that the German
gas market has become a playground for
various foreign, heavyweight competitors: BP,
Exxon, DONG, Shell, GDF, Wingas/Gazprom.
Thus powerful contenders are operating on the
German gas market with an aggressive market
strategy, enjoying open market and network
access. The number and size of companies
actively operating on the gas market can thus
hardly be seen as a competition problem.
Lower gas prices: Anyone who deliberately
weakens German suppliers in such a situation
is thus weakening intensity of competition
and security of supply at once.

Market concentration on the European natural gas markets – downstream
market share of the top 3 in %
100
75
50
25
As network access functions in the EU,
companies will increasingly think and act
European. On the road to that goal it would
be wrong to weaken German companies
one-sidedly. They would then inevitably be the
losers in European competition with other
European companies strongly supported by
their respective governments. European and,
beyond that, international competition will
evolve even without small-cell intervention in
national competition. It remains to be seen
what effect this process will ultimately have
on gas prices.
Adequate security of supply: Safeguarding
our energy supply must undoubtedly be at
the forefront of national and European energy
and economic policy. In this context, we must
stop regarding strong import companies as
national companies. E.ON and E.ON Ruhrgas
have long been operating internationally and
stand for major international investment
aimed at safeguarding secure and competitive
energy supplies for Germany and Europe.
They are one of the largest private investors in
European security of supply. They are willing
to translate their responsibility for energy supplies
into far-reaching investment decisions
in future, too. However, this presupposes an
appropriate and stable framework.
Magazine
0
UK Spain Italy Germany Denmark Austria
Sweden Netherlands Ireland France Belgium
82% 79% 80% 87% 63% 88% 10% 91% 65% 95% 90%
average
source: European Commission, 4th benchmarking report
Long-Term Supply Contracts in Germany
Emphasis on security of supply increases the
attractiveness of long-term supply contracts,
which are highly important for consumers.
It is all the more regrettable that differences
of opinion exist between the Federal Cartel
Office and E.ON Ruhrgas on the consequences
that restricting supply contracts with resellers
have for security of supply and competition.
Though E.ON Ruhrgas does not basically
agree with the Federal Cartel Office’s assessment,
it has nonetheless made major efforts
to move closer together. The differences of
opinion between the Federal Cartel Office and
E.ON Ruhrgas are now confined to two points:
• As regards existing contracts, the issue
is not the original overall duration but
a reasonable transitional period, which is
surely understandable in view of legal
protection for bona fide acts and should
not really be a cause for court disputes.
Here E.ON Ruhrgas is incurring considerable
risks in respect of the company’s
import obligations.
• In the case of new contracts, the company’s
voluntary commitment largely corresponds
to the Federal Cartel Office’s demands.
09

10 Magazine
• However, a ban on participation in competition
is, in our opinion, fundamentally
unacceptable for new contracts because
exclusion from bidding for residual gas
volumes would mean that (especially international)
rivals, who are frequently monopolistic
or state-owned, can gain lasting
market shares in Germany under the protection
of the cartel authorities on terms
that would not materialise if there were
full competition.
Outlook Where should improvements start?
A sober analysis shows that:
• Technical handling of network access still
has to be improved and simplified at all
levels. We are actively working on this.
• Price transparency (at the end user level)
is likewise in need of improvement.
• Residential customers must be able to
choose between several suppliers.
By largely accepting the Federal Cartel Office’s
line, E.ON Ruhrgas is already assuming significantly
more risks because on the purchasing
side it still has to assume long-term commitments,
whereas on the sales side it is on the
whole now only allowed to sign short-term
sales contracts.
At present it is impossible to say whether
these risks, which are a major balancing act,
will be manageable and whether demands
on competition and requirements of security
of supply will be adequately met or better fulfilled
than today. Only time will tell. However,
the possibility that corrections will have to
be made, can definitely not be ruled out.
In summary, the following can be said on
concentration and competition on the German
and European gas markets:
• We face limited supply competition for gas
as a commodity tending towards scarcity.
• Only a few, very powerful companies have
direct access to this commodity. Their counterparties
must be on the same footing.
• On the procurement side, importers are
confronted with intense cross-border,
increasingly global competition.
• One-sided emphasis on price competition
in the national sales market jeopardises
the goal of long-term security of supply.
At times where scarcity is imminent, this
would be a disastrous development with
serious consequences for the future.
• Fragmentation of demand vis-à-vis an
oligopoly of producers gaining further
market power does not help to achieve
adequate security of supply. ¯

Security of Supply:
Key Issue of Energy Supply
Magazine
For a country that relies on energy imports, energy supply is not only a question of competition,
low energy prices and environmental protection. Security of supply is just as much a priority
for energy companies and energy policy. Competition for energy between Europe, Asia and the
USA is getting tougher.
Readjusting Energy Policy The fundamental
changes in supply and demand on the international
energy markets, the geopolitical
disputes, the price developments increasingly
affecting markets – not only the sharp rise in
prices but also their pronounced volatility –
as well as increased public awareness of the
threat to the global climate are currently leading
to a paradigmatic change in the discussion
surrounding the outlook for energy supply.
Previously, the emphasis was mainly on prices
and competition but now efforts are quite
rightly being made to ensure adequate, reliable
supplies in order to focus more on avoiding
and coping with delivery interruptions as well
as on protecting the climate.
Against this background, an intense debate
on the need for an adjustment to or even a
completely new course for energy supplies is
being conducted at both national and European
levels. There is a lot of talk about the growing
role of renewable energies and the progress
made in saving energy and improving energy
efficiency.
Strong Demand Worldwide for Natural
Resources There are many imponderabilities
in the forecasts on the development of global
energy consumption but all predictions have
one thing in common: demand is expected
to rise considerably. In the so-called reference
scenario of its World Energy Outlook 2005,
the International Energy Agency (IEA) assumes
that in 2030 global energy demand will have
risen by more than 50% compared with the
current figure. According to this forecast, oil
and natural gas will account for nearly two
thirds of this increase.
However, the IEA adds that if the consuming
countries can be induced by vigorous state
action to use energy in another way, the increase
in demand for fossil fuels will be much
smaller. Under the conditions of this other
scenario, global energy demand in 2030 will,
nevertheless, still be 37% higher than today.
Furthermore, oil will remain the most important
energy, even in this scenario, with a share
of roughly one third in primary energy consumption.
Natural gas will oust coal from second
place in the next 25 years and will cover
roughly one quarter of world energy demand
in 2030.
Reserves and Resources “With the exception
of conventional oil, the global reserves
situation would indicate that there will be
enough natural resources to cover long-term
energy demand.” This statement made in a
recent BGR study (BGR: Federal Institute for
Geosciences and Natural Resources) sounds
reassuring and is underpinned by figures.
World reserves of conventional gas totalled
173 trillion m 3 at the end of 2005, more than
half of these economically recoverable deposits
being concentrated on the gas-producing
countries, Russia, Iran and Qatar. Thanks to its
access to the major supply regions of Russia,
North Africa and – in future – also the Middle
East, Europe is therefore in a relatively comfortable
situation as far as the geographical
aspects are concerned.
11

12 Magazine
7.5
North America
World natural gas reserves
total proved recoverable natural gas reserves: 173.1 trillion m 3
7.1
South America
Western Europe
5.6
Africa
13.8
Thus, natural gas will be available to supply
consumers for many decades to come. BGR
only sees bottlenecks in supply for the North
American market. However, this problem
could be solved by increased LNG deliveries
(LNG = liquefied natural gas).
Adequate reserves and resources are, however,
just one side of the coin. Securing
deliveries from existing and future gas sources
well into the future is just as important for
covering gas demand, which is, in all forecasts,
expected to rise. There is a lot more to it than
just availability of gas. Delivery volumes must
be contracted on a long-term basis; the production
capacities and infrastructure must be
set up, expanded and maintained.
72.7
55.3
Middle East
Far East/
Pacific Rim
11.1
CIS/
Central Europe
1m 3 = 11.5 kWh
as at 1 January 2006
High Investments Required Therefore, the
real challenge will be to make energy reserves
available for the markets. The IEA forecasts
for global energy supply state that a total of
US $17 trillion will have to be invested in the
period from 2005 to 2030. The immediate
investments in the oil and gas industry run at
about US $3 trillion. More than three quarters
of these investments in the oil industry will
go into the upstream sector, and in the gas industry
the figure is about 60%. Roughly half of
the global expenditure required in the energy
sector has to be made in the developing countries,
as here demand will rise sharply in the
years to come, according to the IEA.
The successful mobilisation of the necessary
capital will all depend on whether the returns
are high enough to compensate for the risks.
As the state steadily withdraws from providing
energy services, the private sector will
increasingly have to fund any energy projects
necessary. Therefore, direct foreign investments
are expected to become an ever more
important source of capital in the non-OECD
regions.

Only a few states would be able to completely
finance forthcoming investments by themselves
even if they wanted to, the IEA writes.
Therefore, states will have to create an attractive
investment climate if they are to procure
the private capital they need.
Energy Imports Remain Integral Part of
Energy Supply Just as today, it will be impossible
to meet future demand for energy both in
Germany and in Europe as a whole without
substantial energy imports. Therefore, the goal
must be to ensure that energy can be imported
from third countries economically, with
political stability and minimum risk.
We will continue to need a broad mix of the
mainly imported energies as well as the number
of energy supply regions, a wide variety of
suppliers as well as different delivery routes.
Nevertheless, there is no reason today to say
that rising energy imports and geopolitical
risks make supply crises inevitable and to
stamp imported energies as unreliable. In such
an energy mix, natural gas has good chances
of strengthening its competitive position in
European and German energy supplies.
The Federal Minister of Economics, Michael
Glos, says security of supply is one of the
most important objectives of energy policy and
at a conference of the energy industry in early
2006 he stated how pleased he was that
Germany “has a well-functioning set of instruments
both at company and state levels to
react adequately to hypothetical bottlenecks
in supply”.
Magazine
Gas Procurement Facing Great Challenges
The gas industry has great challenges to
master on the procurement side. The main
task of gas-importing companies is to mobilise
reserves and, where volumes are not already
contracted, to ensure they are steered longterm
towards the European market. This question
is particularly important considering the
fact that international procurement markets
are currently changing significantly. With natural
gas, it is not only a problem of growing
global competition but also the fact that gas
will increasingly have to be transported to the
consumer from inhospitable regions over
longer and longer distances.
If it is to be successful in competition with
other importing regions and in mobilising gas
for the European market, Europe will have to
create good investment conditions and incentives
for gas producers. Europe must make
itself attractive to established supply countries,
such as Norway or Russia, on which EU
gas supplies can, to a large extent, rely in the
decades to come. It must equally, however,
make itself attractive to regions which have
so far not contributed to our gas supplies or
only to a limited extent. Overall, the following
developments are emerging:
There is great interest in purchasing more gas
from Norway than already contracted, as
Norway is a delivery country that is particularly
close to markets in the EU, and not just geographically
speaking. Europe will in future
moderately expand imports from Russia. Today,
Algeria is also another significant external
supplier. Considerable amounts of Algerian gas
are already being imported, particularly by the
southern part of Europe, i.e. Italy, France and
the Iberian peninsula. European countries
also import quite a substantial amount of LNG
from Algeria. Algeria can be expected to remain
a significant source of supply for Europe.
Countries and regions from which currently
no or very small amounts of gas flow to
Europe will in future become more important
for European supplies of pipeline gas or LNG.
These regions are the Middle East, Africa and
possibly also Central Asia.
13

14 Magazine
Today, LNG only plays a relatively minor role
in gas supplies to the European market.
However, it is set to become more important.
This is because LNG supply chain costs have
been reduced sharply in recent years and
this has greatly increased LNG’s economic
attractiveness. The numerous new delivery
projects which are in the planning or preparatory
stage underscore this development and
are an indication of growing global competition
for LNG (see also article on page 27 ff).
Long-Term Contracts Indispensable in
International Gas Procurement Long-term
delivery contracts which give producers the
necessary security for financing their investments
remain crucial for the mobilisation of
natural gas. They have played and will continue
to play an important role in all projects which
involve high investments, long lead times
and technical and economic risks or which are
particularly challenging due to the climatic
conditions. Long-term agreements are just as
important for the importers as they are for the
exporting gas producers. They guarantee reliable
supplies and thus ensure the kind of security
which trust in the short-term regulatory
powers of the market alone evidently cannot
provide. This can, for example, be seen if we
take a look at the current tense supply situation
on the British Isles.
When talking about long-term supply contracts,
we must also remember that the EU
Gas Directive on Security of Gas Supply,
which entered into force in 2004, expressly
stresses the importance of such contracts
as an instrument for guaranteeing secure gas
supplies in Europe now and in the future.
Competition-Oriented Pricing: Allowing for
the Situation on the Procurement Markets
Prices in long-term import agreements must
continue to take the conditions on the procurement
markets into account. It would be
unrealistic to assume that an energy-importing
country such as Germany, which gets its
volumes of gas from the international market,
could uncouple itself price-wise from the
developments on the world energy markets
where oil is the reference currency.
Prices on the world market must also affect
gas import prices in one form or other. Oil
price indexation – which means that gas prices
are linked to the prices of rival energies – has
proved its worth for this and is neither a dogma
nor a German peculiarity. As pricing based
on competition, it is still the right instrument
for harmonising high security of supply and
competitive prices in a market dependent on
imports. A better alternative guaranteeing
more security, reliability and sustainability is
not in sight.
Oil price indexation has at the moment
anything but pleasing consequences for consumers
in Germany and in other European
importing countries. However, it is justifiable
to doubt whether prices would develop better
for consumers without such oil price indexation
as experience on markets with so-called
free pricing show. There is no reason to change
to other price systems which may perhaps
only have proved successful so far in selfsufficient
markets but give no answer to the
question of how one-sided price determination
by the few dominant producers controlling the
volumes can be avoided.
Conclusions for the Creation of the Right
Political Framework The right conclusions
for the shaping of political and competitive
conditions as well as for regulation in Germany
and in the European context have to be drawn
from these findings on the present constellations
and the challenges on international,
increasingly global gas procurement markets.

Natural gas consumption in Germany
Security of supply is not only an integral
part of energy policy but also of foreign and
security policies Mobilisation of energy for
the European market presupposes uninterrupted
trade and transit and as stable a geopolitical
situation as possible. This increasingly
also requires the political support and flanking
of projects and current gas deliveries. Security
of supply should therefore be an integral part
of foreign and security policies, both at national
and international level, without any fundamental
shift in the distribution of roles between
politics and companies. Responsibility
for supplies is still largely the task of companies
in future.
Energy policy must be a part of foreign and
foreign trade policy, both nationally and at
European level. The aim should be to create
and guarantee sustainable and predictable
political relations with producer and transit
countries and, at the same time, if possible
to also contribute to stability in the countries
and regions involved.
Magazine
in billion m 3 in %
80 32
70 28
60 24
50 20
40 16
30 12
20 8
10 4
0 0
1970 1980 1990 2000 2004 2005
� natural gas consumption
in billion m 3 14.7 57.9 61.4 79.0 86.6 86.6
� natural gas share
in PEC in % 4.3 14.4 15.5 20.7 22.4 22.7
Dialogue and cooperation with producer,
transit and also with other consumer countries
are factors which the EU energy ministers
also underlined at their meeting in mid-March
2006 as important elements for guaranteeing
security of supply in Europe. In the question
of institutional anchoring, it must be said that
there are already dialogue processes in which
the consumers cooperate with the producer
countries, for example the EU-Russian energy
dialogue or the dialogue with OPEC/oil producers
which the EU or the IEA have set up.
It is a question of building on this and finding
workable solutions on which everybody can
and wants to work – energy producers, consumer
countries, transit states and the energy
companies. To sum it up, security of supply
must be organised in a spirit of cooperation
and at a global level.
The question of a coherent energy foreign
policy is also a copious part of the EU Commission’s
energy policy strategy paper, its
Green Paper “A European Strategy for Sustainable,
Competitive and Secure Energy (of
8 March 2006)”, which was discussed at the
meeting of the Council of Energy Ministers.
The EU Commission considers it necessary for
Europe to be put in a position to play a more
effective international role worldwide together
15

16 Magazine
with energy partners and to actually speak
with one voice on this, i. e. to pool interests.
The Federal Ministry of Economics said
after the meeting of the Council of Energy
Ministers that a European regulator would
not be needed.
Seeing company sizes on a global scale
However, German and European competition
policy and anti-trust law practice are in stark
contrast to this proposition, which is definitely
worth considering, as they aim at fragmenting
the united commercial power of European
gas importing companies.
Company sizes and degrees of concentration
must not be primarily measured by the
yardstick of national anti-trust legislation. In
Germany and in Europe, we need global
companies which take risks and participate in
major international projects and can defend
their position against producers and other
powerful competitors from other importing
regions thanks to their united strength and
power. Fragmentation of demand in the face
of a producer oligopoly whose market importance
is steadily growing cannot help to
enhance security of supply.
The theory that more competition on the sales
market – with as many small suppliers as possible
and no long-term agreements, also in the
domestic supply chain – automatically leads to
a high degree of security of supply will not
stand up in practice given the present situation
and the prospects on the international procurement
markets. Even competition dogmatists
who only think in small units cannot close their
eyes to the regional and global challenges.
Regulation must not neglect security
aspects The shape of regulation is of fundamental
importance in guaranteeing reliable
supplies for consumers. A regulatory framework
must create sufficient incentive to keep
the gas networks in good operating condition
and make the necessary investments in
expansion.
A regulatory policy geared to short-term aims
would lead to an erosion of network assets
and would ignore the main framework conditions
on the gas procurement markets which
cannot be shaped unilaterally. We need
farsighted regulation which creates conditions
under which the gas industry can continue
to invest in the maintenance and further
expansion of its infrastructure. This is the only
way that regulation can perform its duty to
guarantee a sustainable, reasonably priced and
secure supply of gas for customers.
Flexibility and reserve capacities Another
aspect has to be considered in the discussion
on energy security of supply. In a time of
greater uncertainty and imbalance in the development
of regional demand, adequate flexibility
and reserve capacities are necessary in
order to be able to reliably supply consumers
even in extraordinary situations.
The question is: who is prepared to invest in
this flexibility and these reserve capacities
given the increasingly fierce competition in the
energy industry? Companies will hardly be
willing to make sufficient investments if shortterm
thinking determines actions.
Conclusion Security of supply is not something
which can be taken for granted but
demands constant attention given the changing
and increasingly global markets and the
growing impact of geopolitical conditions.
It is the task and responsibility of companies
to react flexibly with a sustainable strategy. It
is the task of politicians to make the necessary
adjustments to the framework conditions with
farsightedness and moderation. ¯

Growth Beyond the Borders of Germany
Foreign Sales Increasing – International Shareholdings
Although E.ON Ruhrgas AG still does most of its business in Germany, it has always had an
international focus as well, especially since gas purchasing has always been a question
Magazine
of cross-border trading due to the location of global gas reserves. However, in the role of the
Pan-European Gas market unit in the E.ON Group, E.ON Ruhrgas has become even more
European – in two senses of the word. Foreign gas sales are steadily increasing and share-
holdings in central and east European gas transmission and trading companies are continuously
being expanded.
Sales Activities Abroad E.ON Ruhrgas’s
sales activities abroad are developing well and
here supplies to other E.ON Group market
units are playing a major role. Following the
commencement of deliveries to E.ON UK in
October 2004, gas has also been supplied to
E.ON Nordic since October 2005. Furthermore,
international business has also been boosted
by the extension of existing contracts, the
increasing of delivery volumes and the conclusion
of new supply contracts with companies
outside the E.ON Group.
This is reflected in the sharp rise in volumes
delivered abroad and their share in total
gas sendout. The share of gas deliveries to
customers abroad was 19.6% of total gas
sendout in 2005. By comparison, it was only
5% in 1998 and approx. 14% in 2004. Last
year, E.ON Ruhrgas supplied customers in
a total of 13 European countries.
The prospects are good. For example, it is
planned for E.ON Ruhrgas to supply the first
gas-fired power station which E.ON will be
constructing in Italy, in Livorno Ferraris near
Turin. This 800 MW gas-fired power station is
to go on stream at the end of 2007. Furthermore,
E.ON Ruhrgas is stepping up deliveries
to other E.ON market units as well as its own
international affiliates.
Shareholdings in Energy Companies in
Central and Eastern Europe One strategic
goal of the E.ON Group is to strengthen its
market position in central and eastern Europe
through selective acquisitions. E.ON Ruhrgas
made further progress towards achieving this
goal in 2005.
Romania With E.ON Gaz România (formerly
DistriGaz Nord), E.ON Ruhrgas now holds a
majority interest in one of the two big regional
gas companies in Romania. As part of the
privatisation of the Romanian gas industry,
E.ON Ruhrgas made a bid for DistriGaz Nord,
which was accepted in October 2004. The
transaction was completed in June 2005 following
the approval of the relevant authorities.
Since then, E.ON Ruhrgas has held a majority
shareholding of 51% in E.ON Gaz România,
which is responsible for gas trading and distribution
in the northern and western parts of
Romania. Every year, it supplies more than
1.2 million customers with approx. 4 billion m 3
of gas through its 17,500 km pipeline network.
Romania’s economic growth dropped significantly
from 8.3% in 2004 to approx. 4% in
2005. The main reason for this slow-down was
the agricultural sector, which was particularly
badly affected by the flooding in the spring
and summer of 2005. By contrast, the construction
and services sectors enjoyed high
growth rates. The inflation rate was reduced by
roughly 3.5 percentage points to about 9%.
17

18 Magazine
SERBIA AND
MONTENEGRO
Natural Gas Supplies in Romania
HUNGARY
Arad
Timisiora
Oradea
Bihor
Arad
Timis
Satu Mare
Baia Mare
Zalau
Deva
Cluj
Alba
Hunedoara
Targu Jiu
Resiva
Gorj
production
underground storage facility
Mehedinti
transmission pipeline
Turmu
planned transmission pipeline
Severin
DistriGaz Nord (today E.ON Gaz România)
DistriGaz Süd
UKRAINE
Baia Mare
Cluj
Alba
Bistrita
Bistrita
Craiova
Dolj
In this difficult environment, E.ON Gaz
România is faced with the challenge of equipping
itself to meet growing competition on the
Romanian gas market and fulfil the regulatory
requirements of the European Union. Therefore
the company is in a restructuring phase
which involves efficiency enhancement measures
and modernisation, particularly of the
IT sector and the pipeline network, as well as
the company’s integration into the E.ON
Ruhrgas Group. Since the beginning of 2005,
a team of some 15 E.ON Ruhrgas employees
has been in Romania itself, working closely
with the Romanian management of E.ON Gaz
România. In 2006, a completely new, modern
organisational structure is to be introduced. It
is planned to unbundle the company’s trading
and transmission businesses by mid-2007.
The integration of E.ON Gaz România into the
E.ON Group is to be completed by 2008.
Suceava
Suceava
Mures
Botosani
Piatra-
Neamtj
Bacau
Iasi
Bacau
Vaslui
Vaslui
BULGARIA
MOLDOVA
Târgu Harghita
Mures
Galati
Sibiu
Fargas
Brasov
Focsani
Galati
Sibiu
Brasov
Pitesti
Buzau
Braila
Tulcea
Tulcea
Valcea
Pitesti
Prahova
Targivist
Valcea
Ialomita
Targoviste
Calarasi
Bucharest
Calarasi
Giurgiu
Constanta
Constanta
Alexandria
Giurgin
E.ON Energie AG, a sister company of E.ON
Ruhrgas responsible for the central European
electricity business, also operates on the
Romanian market. Its bid for an electricity distribution
company which covers part of the
supply territory of E.ON Gaz România was also
accepted by the Romanian government. This is
expected to generate considerable synergies
in the downstream area.
Hungary E.ON Ruhrgas International (ERI),
which holds the international shareholdings of
E.ON Ruhrgas, took over the gas business
of the Hungarian company, MOL, at the beginning
of January 2006.
Black Sea

The fact that the negotiations, which had
been running since October 2004, were so
protracted was due in part to anti-trust law
issues. ERI and MOL had already signed the
contract for the acquisition of 75% minus
1 share of the MOL trading and storage businesses
as well as a 50% interest in Panruzgas,
a Hungarian gas import company, at the beginning
of November 2004. Then the authorities
started their examination of the anti-trust law
situation.
In December 2005, the EU Commission
approved the acquisition subject to certain
requirements. One of these requirements was
that MOL had to sell its entire gas storage
and gas trading businesses. Therefore, ERI
also took over the remaining 25% in the two
companies. The acquisition of the additional
shares was approved by the Hungarian energy
authorities at the beginning of 2006. This
transaction will secure ERI a strong position in
the Hungarian midstream business.
The MOL acquisition was therefore an extremely
difficult and protracted process, which
shows just how carefully the cartel authorities
are watching the expansion of large companies.
It also revealed that regulation in central
and eastern Europe involves considerable risks
for large companies. For example, the regulatory
framework in Hungary has changed considerably.
Just like in Romania, they are hesitating
to pass on the sharp rises in import
prices to residential customers and industry
whose prices are still regulated today.
Nevertheless, Hungary is, all in all, still an
attractive market. Economic growth is running
at approx. 4% a year compared with 0.9%
in Germany. And Hungary has also been successful
in beating inflation: The once high inflation
rates of 10% (in 2000) have now dropped
to about 3.6% (Germany: 2%).
Slovakia E.ON Ruhrgas has a shareholding
in the gas company, SPP, which supplies
gas throughout Slovakia. SPP continued performing
well in 2005. However, the Slovak
government is putting great pressure on gas
companies regarding their tariffs, not least
because of the sharp rise in import prices.
Magazine
Italy Thüga Aktiengesellschaft (Thüga),
a business unit of E.ON Ruhrgas, is concentrating
its activities abroad on the Italian gas
market. Thüga has pooled its shares in Italian
gas companies under the holding, Thüga Italia.
The Italian holding has focused on the economically
strong northern and central regions
of Italy. In 2005, the companies of the Thüga
Italia group sold approx. 18 billion kWh of gas.
The growth potential which the Italian gas
market offers makes it particularly interesting
for Thüga. Measured by gas consumption,
the Italian gas market is one of the largest in
Europe alongside the British and German gas
markets. The structure of the Italian gas market,
which is characterised by a large number
of gas suppliers, including small companies,
offers good opportunities for further involvement.
The private and municipal owners of the
largely medium-sized companies are looking
for strategic partners or are prepared to sell
their shares entirely.
Thüga Italia is conducting intensive negotiations
with private and also municipal shareholders
with the aim of acquiring new shareholdings.
The company plans to grow further
by bidding for gas network franchises. Sales
partnerships, particularly in the municipal gas
supply sector, offer further chances to expand
the company’s position on the Italian gas
market. However, the present regulation of gas
networks in Italy, restrictive tariff approvals
and stiff competition are also putting considerable
pressure on the earnings of the Thüga
Italia companies. ¯
E.ON Ruhrgas AG’s sales abroad
in billion kWh
160
140
120
100
80
60
40
20
0
1996 2001 2002 2003 2004 2005
3.5% 7.4% 10.9% 10.6% 13.7% 19.6%
exports to Austria, Benelux, Denmark, France, Hungary, Italy, Liechtenstein, Poland,
Sweden, Switzerland and the United Kingdom
19

20 Magazine
Country Portrait: Hungary
Hub for the European Gas Market
Hungary has been a member of the European Union since May 2004. The country’s gross
domestic product grew by 4.1% in 2005 and is expected to continue to grow at this rate in the
next few years. Inflation fell from 10% in 1999 to 3.6% in 2005 and the trend is downwards.
Hungary is the leader in the reform process in countries of central and eastern Europe. All these
factors together are a good constellation for investors. E.ON Ruhrgas AG has been involved in
the Hungarian gas industry since the 1980s. The takeover of the gas trading division and storage
activities of the Hungarian energy company, MOL, have presented E.ON Ruhrgas with great
challenges but also opened up great opportunities for the company in this region.
The Hungarian economy did not grow quite
as much as in the other new member states
of the European Union but other economic
performance data are better in Hungary. Since
the government has focused on providing a
social cushion for the population, unemployment
is relatively low. This promises higher
domestic consumption in the next few years,
which will in turn trigger further strong growth.
Structure of primary energy consumption in Hungary
in %
50.0
37.5
25.0
12.5
0
oil natural gas coal nuclear power others
Apart from the high balance of trade deficit,
the main weakness of the Hungarian economy
is its high budget deficit. From 2002 to 2004,
the government managed to reduce the budget
deficit from 8.5% to 5.4% of GDP. However,
contrary to government plans, it seems
to have risen slightly again in 2005. Therefore,
it is still well above the Maastricht reference
figure of 3% of GDP. There has been little improvement
in the balance of trade deficit since
2004. Together with the tense budget situation,
this could lead to pressure to devalue the
forint in 2006. As one of the major German
banks wrote: “The budget and balance of trade
deficits mean that sudden withdrawals of
short-term foreign capital coupled with sharp
fluctuations in the exchange rate and a harsh
economic adjustments are possible.”

SLOVENIA
Natural Gas Pipelines in Hungary
AUSTRIA
CROATIA
Gyor
Nagykanizsa
Pécs
Growth Region for Gas Energy consumption
in Hungary is currently running at 26 mtoe,
which is 7.5% of German primary energy
consumption (PEC). Natural gas is Hungary’s
No. 1 energy, covering 45% of energy demand.
That is roughly the same as that of Dutch PEC.
Oil is another mainstay of Hungarian energy
supplies, accounting for 25% of total energy
consumption, followed by coal and nuclear
power (together 25%). Gas sales by sector
break down as follows: 50% for residential
and commercial customers, 15% for industry,
26% for power stations and 9% for other
uses. In their forecasts, experts predict that
gas consumption in Hungary may well climb
from today’s 13 billion m 3 to up to 16 billion m 3
in 2020.
Hungary plays a strategic role as the hub of
the gas industry in the region since the
demand for gas in neighbouring countries
and in Hungary will continue to rise.
Against this background, E.ON Ruhrgas’s
takeover of MOL’s gas trading business and
the gas storage facilities is a wise decision
because it is not only a sensible supplement to
the Group’s existing gas and electricity activities
in Hungary but also opens up a realistic
SLOVAKIA
Budapest
Szeged
SERBIA
Miskolc
Magazine
Debrecen
Hajdúszoboszló
chance of participating in the country’s economic
growth. As a gas wholesaler for regional
gas companies, MOL also supplies industrial
companies and power stations in Hungary.
The takeover of MOL’s gas trading business
and the gas storage facilities has also improved
E.ON Ruhrgas’s starting position in the
liberalised energy markets of central and eastern
Europe. The five underground gas storage
facilities, which currently have a working gas
capacity of 3.4 billion m 3 , definitely deserve
mention in this context.
Energy Policy in Hungary The Ministry of
Economy and Transport, which was set up
some years ago, is responsible for energy policy
in Hungary. Within this ministry, a separate
authority (Magyar Energia Hivatal, MEH) deals
with energy policy and also handles regulatory
issues. One of the MEH’s first tasks was to
oversee the gas and electricity prices, which
have been set by the ministry since the mid-
1990s. The difficult transition from the former
ROMANIA
UKRAINE
supraregional gas pipeline
regional gas pipeline
gas delivery point
21

22 Magazine
planned economy to a liberalised market is
also being steered by the MEH, which has set
itself an ambitious target: Liberalisation of the
Hungarian energy markets is to be completed
by 2007.
The electricity industry has made most progress
in the liberalisation process. The majority
of Hungarian power stations are now in
private hands. The fact that Hungary accepted
support from west European regulators is
evident from the systematic implementation
of unbundling. Production, distribution and
marketing in the power-generating industry
have been separated in Hungary with the help
of experts from the Netherlands and the United
Kingdom. The liberalisation of the Hungarian
gas market is not as far advanced as that of
the electricity market. However, the energy
authorities have left no doubt that this aim will
soon be achieved. ¯
Hungary:The Focus of German Investors The structure of foreign trade between
Hungary and Germany is changing rapidly. The share of industrial goods exported to Germany
is growing fast whilst the share of agricultural products, food and raw materials or
energies is steadily falling. Since the 1990s, more and more German companies have
moved their production facilities to Hungary. 40% of German capital investments in central
and east European countries go to Hungary. The Hungarians say that German companies
are playing a significant role in the privatisation of the Hungarian energy and gas sector.
By the end of 2002, more than US $28 billion of foreign capital had been pumped into
Hungary. Of this figure, approx. US $8.7 billion came from Germany, which is 31% of all
capital injected. There are currently more than 7,500 Hungarian companies in which German
investors hold a stake. The capital for eleven of the 50 largest Hungarian companies
which were established with foreign investments came from large German companies.
This not only benefits the some 10 million inhabitants of Hungary but also the populations
of the neighbouring countries who, for example, profit from the continually improving gas
supply infrastructure.

Magazine
Underground Gas Storage Facilities:
Important Function for Gas Supplies in Line
with Demand
Reliable gas supplies in line with patterns of demand have become something we take for granted.
Underground gas storage facilities are an element in the infrastructure of the gas industry which
makes it possible to create a balance between the virtually continuous supply of gas from the
producing countries and deliveries to the customers where demand fluctuates sharply depending
on the season. Underground storage facilities also help to bridge temporary supply bottlenecks.
E.ON Ruhrgas procures its gas on the basis of
long-term agreements with virtually constant
delivery volumes. Therefore, in the summer
when consumption is low, the gas which is
not required has to be stored in underground
gas storage facilities so it is available for the
customers when they need it in the winter
and when consumption peaks on particularly
cold days. In addition to their technical role
as a load-matching instrument, underground
gas storage facilities will become increasingly
important for security of supply as an indispensable
link between the gas deposits and the
consumer.
The Two Types of Underground Gas Storage
Facilities Basically there are two ways of
storing gas underground: the storage cavern
and the storage reservoir. The two differ with
regard to the reservoir rock and the storage
mechanism. Caverns are large natural or manmade
underground cavities. The man-made
cavities are created by leaching them in rock
salt or by using mine workings. The artificially
leached salt caverns are particularly important
for storing gas underground. The petro-physical
properties of salt guarantee the natural tightness
of the rock salt caverns and make an
additional lining, such as required for storage
caverns in disused mine workings, unnecessary.
The use of salt caverns as underground gas
storage facilities depends on the occurrence of
huge underground salt deposits at accessible
depths. The salt domes in northern and central
Germany are particularly suitable for this.
Large cavities for storing gas can be created in
the rock salt, which is mainly located in socalled
salt stocks only a few hundred metres
under the earth’s surface, and can easily be
tapped through borings. These bore holes are
then used to inject water into the deeper rock
salt layers and to pump the dissolved salt to
the earth’s surface as brine. The cavern is in
most cases cylindrical in shape. Depending on
the size, the heights of such caverns vary between
100 and over 500 metres and the volumes
of gas stored between 40 and 100 million
m 3 per cavern. The cavities formed resemble
underground tanks and the borehole is the
only way of injecting gas into or withdrawing
gas from them. Compressors are used to inject
the gas into the caverns and store it there
under pressure. This way, it can be withdrawn
quickly at any time for peak shaving.
The gas held in a gas storage facility is always
divided into cushion and working gas. The
cushion gas is the volume of gas that is necessary
to ensure the minimum storage pressure
necessary for optimal gas injection and withdrawal.
In caverns, the cushion gas is also
necessary to ensure stability. The proportion
of cushion gas is roughly one third to a half of
23

24 Magazine
Surface installations
of an
underground gas
storage facility
the maximum storage volume and remains
permanently in the storage facility. Working
gas is the gas volume which can be stored
or withdrawn at any time in addition to the
cushion gas.
Storage reservoirs are mainly used for covering
the seasonal base load as they often have
a large storage volume and, due to the natural
flows in the reservoir rock, mostly sandstone,
react more slowly to changes in withdrawal
rates in the storage well holes. The porosity
and fissurization of the rock are ideal prerequisites
for storing gas. Storage reservoirs are
underground gas storage facilities in depleted
gas or oil deposits as well as in aquifer horizons.
Since gas and oil have previously been
extracted from these deposits, they have
already been well examined before they are
used for gas storage and their storage behaviour
is known. The cap rock layers which
mostly consist of mudstone or rock salt have
been impervious to gas for millions of years
and therefore ensure safe storage operations.
Aquifers are porous, water-filled rock strata
which are covered by impermeable cap rock.
The injection of storage gas displaces the
resident water from the porous spaces and
creates an artificial gas deposit. When the
gas is withdrawn, the displaced water pushes
the stored gas back into the well hole.
Status Quo in Germany A study published
every year by the Lower-Saxonian Office for
Mining, Energy and Geology (formerly NLfB)
shows that a total of 44 underground gas
storage facilities were in operation in 2005.
The storage capacity is split between 23 storage
reservoirs and 21 storage caverns. About
65% of the working gas is stored in storage
reservoirs and 35% in storage caverns. At
the end of 2005, they contained a total of
19.1 billion m 3 of working gas. In 2005, there

were more than 25 storage operators in
Germany. In order to meet growing demand,
10 underground gas storage facilities are currently
being expanded in Germany and 15 new
facilities are under construction or planned.
E.ON Ruhrgas AG has 5.1 billion m 3 of working
gas capacity in 11 underground gas storage
facilities which are spread from the North
German plains to the foothills of the Alps.
E.ON Ruhrgas operates the third largest
storage reservoir in Germany, Bierwang, which
is a former gas deposit located in sandstone
strata at a depth of 1,500 metres. The E.ON
Ruhrgas underground gas storage facility in
Epe is by far the largest gas storage cavern
in Europe. E.ON Ruhrgas stores about 1.6 billion
m 3 of working gas in 32 salt caverns in
Epe. This storage facility is currently being expanded.
The demand for gas storage capacity
will continue to increase at E.ON Ruhrgas both
in the short term and the long term. In 2005,
E.ON Ruhrgas took extensive action to expand
existing storage facilities.
Although underground storage facilities are
complicated and costly to construct, they are
still the cheapest and at the same time safest
way of storing gas. Thanks to the minimum
space required for surface installations, the
landscape is not sullied nor is the environment
damaged.
Magazine
In Germany, there is still relatively good
potential for expanding underground gas storage
facilities but the considerable planning
and construction lead times and the high engineering
requirements of such projects must
not be forgotten.
Expansion of Capacity in Europe Necessary
According to estimates of the International
Energy Agency, approx. 600,000 km of new
gas pipelines have to be laid in Europe by
2030. Furthermore, there is an even greater
need to renew and expand gas storage facilities
since their capacity has to be adjusted
to meet the sharp rise in gas consumption.
Germany currently has enough storage capacity,
including the E.ON Ruhrgas facilities, to
cope with a more than two-month total interruption
of deliveries. Thus the German gas
supply companies are already meeting the
requirements which the EU Energy Commissioner,
Andris Piebalgs, plans to introduce. He
intends to oblige the 25 member states to
keep sufficient gas stocks to cover domestic
demand for two months.
Sectional drawing
of a storage
cavern facility
25

26 Magazine
Sectional drawing
of a storage
reservoir facility
Since the liberalisation of the energy markets,
the gas storage facilities and thus the technologies
connected with them have gained
increasing economic and political significance.
Storage capacity is particularly important for
gas trading and purchasing. At present, all
storage operators can apply the voluntary rules
of April 2005, which were agreed and laid
down in the Guidelines for Good Practice for
Storage System Operators (GGPSSO) of the
European Regulatory Group for Electricity and
Gas (ERGEG). E.ON Ruhrgas has implemented
these rules for its storage operations. ¯
90 Years of Storing Gas Underground Storing gas underground is a Canadian invention.
A gas storage facility was already set up in a depleted gas field in Ontario in 1915. This was
followed by a gas storage facility in the state of New York (USA) in 1916. Once this technology
had stood the test of time, aquifers were also experimented with for the first time
in Kentucky (USA) in 1946/47. The first underground gas storage facility in Germany was
commissioned in Engelbostel near Hanover in 1953.
In the USA, they began to store gas in salt caverns in 1961 and this technology was also
introduced in Germany and France in 1970. The Belgians also stored gas in disused coal
mines. Since the end of the 1990s, rock caverns have also been used for storing gas in
the Czech Republic. Another rock cavern storage facility is currently being commissioned
in Sweden. Storage capacities have been greatly expanded all over the world and today
storage volume has increased worldwide to approx. 340 billion m 3 .

LNG: Flexible Supplement to Pipeline Gas
Magazine
Whether it is worthwhile liquefying natural gas and transporting it in this state is by no means a new
question. Experts of Ruhrgas AG and Gelsenberg AG already gave this question deep thought over
30 years ago and could see the great potential of gas liquefaction technology. With it, natural gas can be
cooled to minus 161.5°C, thus reducing its volume considerably and making it easier to transport in
large quantities.
The cooling process in fact transforms 600 m 3
of natural gas into just 1 m 3 of liquefied gas.
In this state, LNG (liquefied natural gas) can be
transported at near atmospheric pressure in
special tanker vessels with insulated storage
tanks. Once it arrives at the port of destination,
it is then heated in a simple process and
returned to its gaseous state so it can be
transported by pipeline to the users.
The discussion which started all those years
ago led to the establishment of Deutsche
Flüssigerdgas Terminal Gesellschaft mbH
(DFTG) in 1972. This company still exists today.
The present shareholders are E.ON Ruhrgas,
which has a 78% share, BEB Transport GmbH
& Co. KG, Hanover, with a 12% share and
VNG – Verbundnetz Gas AG, Leipzig, with a
10% share. Given the E.ON Group’s strategy
of placing gas supplies on a broader basis and
thus further strengthening security of supply
in the long term, LNG is a highly promising
option.
The reasons are obvious: While the demand
for natural gas is continuing to rise in both
Germany and the EU, European gas production
is declining. Possible sources of LNG for
Europe are the Middle East in particular, as
well as West and North Africa. In future, it
will be possible to transport LNG by ship from
these producer countries to consumers in
Europe as a reasonably priced alternative to
pipeline gas. The technology for liquefying gas
in so-called LNG trains in the producer countries
and regasifying it at the port of destination
is so developed that every year nearly
180 billion m 3 of gas are now transported in
this way throughout the world. This is roughly
one quarter of all gas traded across borders or
6% of global gas consumption. Experts expect
this figure to rise to 310 billion m 3 by 2010.
Efficient LNG Transportation Chains The
costs of the LNG chain (liquefaction – transportation
by sea – regasification) are high,
but technical advances and cost reductions
have made the process economically viable.
This is particularly true for supply regions
which are not yet connected to the pipeline
system or where connection makes no sense.
However, although the costs for LNG have
fallen by approx. 20% in the last 20 years,
this technology still requires a considerable
initial investment of several billion US dollars,
depending on the size of the project, the
geographical conditions in the producing and
receiving countries and the costs for transportation
by sea, which depend on the distance
involved.
27

28 Magazine
Liquefied Natural Gas (LNG)
for Europe
in billion m3 /a
LNG supplies in 2004
(37.2 billion m3 )
from
Trinidad/
Tobago
future LNG supplies
from new contracts
from
Nigeria
0.8 GdF
3.8 Enel
Sines
We in central Europe also need efficient port
installations with proper LNG receiving
terminals. The requirements placed on such a
location must not be underestimated. Not only
must the terminal be accessible to LNG
tankers, which are becoming bigger and bigger.
Getting the gas from the receiving terminal
to the consumer is just as important an
issue. E.ON Ruhrgas is looking thoroughly into
this subject. Through its shareholding in DFTG,
the company already has a suitable location in
Wilhelmshaven, the only deep-water port in
El Ferrol
Huelva
Bilbao
1.28 Portugal
2
17.15 Spain
15
Cartagena
Sagunto
Arzew
Montoir
9.88* France
8
Barcelona
Algeria
* including 3.8 billion m3 /a from Nigeria via Montoir for Enel/Italy
Source: GIIGNL
Fos-sur-Mer
Zeebrugge
2.88 Belgium
7
Skikda
from
Norway
La Spezia
Germany with an 18-metre navigation channel.
Wilhelmshaven is not only Germany’s largest
marine location but has also been a major
petroleum transshipment facility and the business
headquarters of chemical companies
for many decades. Here it might be possible
to exploit synergies. A feasibility study is
currently examining whether and how the
synergies can be used.
DFTG owns an 84-hectare piece of land on
the Voslapper Groden industrial estate. The
permits for the construction of the onshore
facilities have been granted and zoning
ordinance has been obtained for the marine
facilities. What makes the Wilhelmshaven
location particularly attractive is its proximity
Rovigo
1.88 Italy
12
Libya
Brindisi
0.44 Greece
Marsa el Brega
Revithoussa
Marmara
Ereglisi
3.68 Turkey
Aliaga
from Egypt, Oman,
Qatar, Yemen
from Abu Dhabi, Oman,
Qatar, Brunai, Malaysia

LNG Chain
to the German gas transmission grid and to
underground gas storage facilities. For example,
only an approx. 30 km pipeline would have
to be built to reach the Etzel underground gas
storage facility.
Commissioning in 2010 Possible From
the economic aspect, there is a great deal in
favour of Wilhelmshaven, not least the fact
that the new generation of LNG tankers with
a capacity of approx. 250,000 m 3 could easily
dock there. The prerequisite for a decision to
build the LNG terminal is naturally the conclusion
of an appropriate LNG supply agreement.
Here, E.ON Ruhrgas is already negotiating
with several LNG producers. When the terminal
is commissioned, two LNG storage tanks,
each with a capacity of 160,000 m 3 , will accommodate
the cargo from the LNG tankers.
The lay-by time of the tankers will be relatively
short as the LNG can be discharged at a rate
of 18,000 m 3 an hour. The regasification and
injection rate into the pipeline network will
be 1.5 to 1.8 million standard m 3 per hour. ¯
• LNG is another way of transporting gas.
Magazine
gas production liquefaction
transport by tanker regasification markets
• It used to be mainly markets which could not be reached by pipeline gas
which were supplied with LNG (Japan, Korea).
• Today, LNG is also competitive in traditional pipeline gas markets.
• LNG offers additional flexibility as it can be landed at different terminals.
Today, LNG tankers can transport up
to 150,000 m 3 of LNG. That is roughly
90 million m 3 of gaseous natural gas.
Converted to energy content, an LNG
tanker can therefore transport up to
1 billion kWh.
29

30 Magazine
Gas from Our Own Sources
Involvement in Production
E.ON intends to cover up to 20% of its gas supplies from its own sources in the long term.
To achieve this aim, Pan-European Gas, the market unit for which E.ON Ruhrgas is responsible,
will be further diversifying and strengthening its gas supply portfolio. E.ON Ruhrgas E&P GmbH
handles the upstream business, which is the term used in industry for the exploration and
production of the gas. Through its subsidiaries, E.ON Ruhrgas UK Exploration & Production Ltd.
and E.ON Ruhrgas Norge AS, this company has stakes in gas fields or acquires exploration
and production licences. The upstream business was considerably expanded in 2005 through the
acquisition of the British company, Caledonia.
E.ON Ruhrgas E & P GmbH is active above
all in gas production in the North Sea through
its subsidiaries. E.ON Ruhrgas UK currently
holds stakes in 7 producing fields in the British
North Sea, from which approx. 450 million m 3
of gas was produced in 2005. The acquisition
of Caledonia at the beginning of 2006, which
has since been renamed E.ON Ruhrgas UK
North Sea, added not only 5 producing fields
but also 10 gas finds in the southern part of
the British North Sea, which are to be developed
in the next few years. E.ON Ruhrgas
Norge has a stake in the Njord field in the Norwegian
North Sea. Its interest was increased
to 30% in September 2005. The gas produced
in the Njord field is currently still being reinjected
to boost oil production. Gas production
is to commence in 2007.
In addition to stakes in gas fields, E.ON
Ruhrgas E&P also acquires so-called exploration
and production licences which entitle it
to perform seismic work as well as geological
and geophysical studies and borings with the
aim of proving the existence of gas reserves
which can then be produced under licence.
Currently the company has a portfolio of
licences in the British sector of the North Sea
(South Gas Basin as well as central North Sea)
as well as in the Norwegian sector (Norwegian
Sea and northern North Sea).
In the following we would like to explain some
of the most important concepts in natural gas
production.
The Formation of Natural Gas Natural Gas
forms in a similar way to petroleum and the
two are therefore often found together. It is
mainly formed from plant and animal matter
which sinks to the ocean floor, becomes embedded
in mud and is then covered by further
sedimentation. The organic material remains
preserved as organic slime under the exclusion
of air, from which the host rock of petroleum
and natural gas forms. As it is progressively
covered with more and more rock material, the
host rock sinks into deeper layers and is there
slowly heated by the natural heat from the
earth’s interior. When certain threshold values
for temperature and time are exceeded, the
organic components which have remained
preserved are converted in several complex
processes into petroleum and natural gas.
Natural gas generally takes many million years
to form. Most of the gas available today was
formed 15 to 600 million years ago.
The Search for Natural Gas The exploration
of petroleum and natural gas is a complex,
capital-intensive science. Sophisticated and
costly geological, geophysical and geochemical
work has to be conducted before drilling can
commence. In this way, structures worth
drilling can be discovered (known as prospects
in the industry) in which oil or gas deposits

Producing Fields of E.ON Ruhrgas E&P
in the North Sea
Teesside
Canvey Island
Isle of Grain
St. Fergus
Theddlethorpe
Bacton
Glenelg
West Franklin
Sullom Voe
Ravenspurn North Hunter
Johnston Schooner
Caister
Rotterdam
Callantsoog
Merganser
Scoter
Elgin/Franklin
Dornum
Emden
Kårstø
Kollsnes
Bergen
Wilhelmshaven
Kærgård
Nybro
Kiel
Hamburg
Njord
Magazine
Lübeck
Tjeldbergodden
Ålborg
Rostock
31

32 Magazine
View from
above onto a
drilling deck
are expected. The likelihood of actually finding
gas is assessed by quantifying the geological
chance factor and the size of the possible
strike is also estimated. Once the prospect has
been defined in that way and the economic
chances and risks of the project have been
weighed up and the outcome is positive, the
detailed drilling plans commence with the
determination of the coordinates of the target
and the optimum drilling path. Then the project
can be passed on to the drilling engineers.
Drilling for Natural Gas Deep wells have to
be drilled in order to reach the natural gas
deposits. The most common technology used
today is the rotary drilling method in which
a cutting bit is rotated and thus penetrates the
rock. Depending on the hardness of the rock,
the bit advances just a few metres or several
hundred metres a day. The well bore has a
diameter of between 10 and 70 cm. Drilling
mud is used to cool the bit, support the wall of
the well bore and remove the crushed bits of
rock from the well bore.
Floating drilling rigs were developed in order
to perform drilling operations in deep waters in
which conventional onshore drilling methods
can no longer be used. These designs permit
wells to be drilled at water depths of up to
3,000 m. The world’s sediment basins cover
an area of approx. 38 million m 3 .
Modern technologies make it possible to exactly
control the path of a drilling. Today it
is also possible to deflect a vertical boring in
another direction – up to horizontal borings
over more than 1,000 m. With the so-called
multilateral drilling technology, a well is

anched in order to create more than just one
drainage point in a deposit. The deepest bore
hole ever drilled is the Kola SG-3 drill hole
on the Kola peninsula in Russia which reached
a final depth of 12,262 m in 1994.
The costs of borings are a main proportion of
the exploration and development costs of a
deposit. For offshore deposits, they generally
account for 15 to 40% of the costs, for the
development of petroleum and natural gas
deposits on the mainland, drilling costs can
account for up to 80% of total development
expenditure.
Natural Gas Reserves The world’s proved
recoverable natural gas reserves totalled some
173 trillion m 3 at the end of 2005. Reserves
are considered to be proved recoverable reserves
if they can be recovered economically
with state-of-the-art technology under current
conditions. Proved natural gas reserves would
cover gas supplies into the 70s of the 21 st century
if production were to stay constant. The
other reserve categories are probable and
possible reserves which differ as regards the
degree of uncertainty about their size and their
extractability. In contrast to this, quantities of
natural gas and petroleum which cannot be
recovered economically at present are called
resources. These are again subdivided into
conventional and non-conventional resources.
Magazine
The conventional resources are proven
quantities which are estimated at well over
200 trillion m 3 . Non-conventional resources
are mainly tight gas, coal seam gases, gas
hydrates and aquifer gases. These deposits
can, practically speaking, not be recovered
with conventional production methods. They
are available in volumes many times that of
conventional resources.
Russia and the Middle East have the largest
proved natural gas reserves. Together they
have approx. 70% of all reserves. Europe only
has a small proportion of proved natural gas
reserves at 3%. Germany’s natural gas deposits
are depleting and will lead to a decline
in production in just a few years. As Europe’s
reserves fall and its demand rises, Europe’s
dependency on natural gas imports will continue
to increase. Huge investments in infrastructure
projects are necessary to secure gas
supplies in the long term with imports from
Russia and the Middle East. Furthermore,
Europe will be increasingly in competition for
these reserves with Asia and America. ¯
33
Helicopter pad in
the Njord field

34 Magazine
Potential for Biomass
Natural Gas Plus Biogas: A Good Mixture!
The use of renewable energies is being promoted by politicians throughout Europe and is
steadily growing. The reason for this is not only the good ecological balance but also the high
reserve and resource life of renewable energies. Using the public gas network for transporting
biogas is an opportunity to supplement the portfolio of renewable energies in Germany.
This development will also be influenced by the trend towards higher fossil fuel prices. However,
in the long term, biomass will have to survive without subsidies.
Gas from biological waste, which is recovered
in special fermenting plants and then used for
generating electricity and heat, is only a recent
addition to the supply portfolio of energy
companies. The situation has, however, now
changed radically. Today, companies are seriously
discussing whether to use the public
gas system for transporting biogas. Biogas has
to be conditioned before being fed into the
network but then it has the same quality and
properties as natural gas. This conditioning
makes the cost of biogas three times higher
than the price paid by the municipal utilities
for natural gas but thanks to the Renewable
Energy Sources Act (EEG), the cost-effective
use of biogas for power generation is still
basically possible.
Biogas forms from the bacterial decomposition
of organic materials. About 60% of the biogas
is methane, approx. 35% carbon dioxide and
the rest is nitrogen, hydrogen and hydrogen
sulphide. Therefore, freshly produced biogas
has to be cleaned first. The sulphur is removed
by adding oxygen and then the gas is dried
in a condensate separator. Furthermore, the
hydrogen sulphide which forms is chemically
converted and eliminated by adding a ferrous
mass.
It is now state of the art to use biogas in gas
engine-driven cogeneration plants. These
facilities produce both electricity and heat. The
electricity generated is either used by the
producer himself or fed directly into the public
electricity grid. The waste heat from the gas
engines can be used locally to heat buildings
and also directly as process heat for the
fermenting vessels to produce more biogas.
To improve the energy balance and cost effectiveness
of the whole process, the excess
heat can be sold to heat customers such as
nearby commercial companies.
Expandable Today, some 2,500 biogas plants
with an installed power rating of over 250 MW
produce electricity from liquid manure, energy
plants or dung. Dr Claudius da Costa Gomez,
managing director of the Biogas Association,
explains the great potential of biomass and
biogas as follows: “In Germany, about 12 million
households could be supplied with electricity
from biogas if it were optimally used.” At
present, the reality is that 2,500 biogas plants
operate in Germany, producing electricity and
heat for some 500,000 households.
Another highly promising technology is being
tested parallel to this. In future, it is planned
to use biogas increasingly in fuel cells for
generating electricity. E.ON Energie wants to
be involved in the development of this technology
and is therefore taking part in pilot projects
in which biogas produced by agricultural
enterprises is converted directly into electricity
through the so-called cold combustion process

in a fuel cell. These plants produce approx.
250 kW of electricity. With their operating
temperature of 600°C, the MCFC fuel cells
selected for these projects not only offer
considerable advantages through additional
heat recovery, these types of fuel cell can also
easily cope with the CO2 contained in the
biogas. Therefore, the engineers were able to
focus their efforts on the development of a
low-cost gas treatment process to reduce the
sulphur content of the biogas to a figure of
less than 0.1 ppm.
Fuel cell technology makes it possible to generate
electricity from biogas more efficiently
than before and to considerably increase the
efficiency compared with classic cogeneration.
With these projects, E.ON Energie AG is continuing
the successful development of costefficient
processes for producing electricity
from biomass.
Feeding Biogas into the Gas Network Now,
other uses of biogas are also being developed
parallel to the electricity generation option.
At the end of January 2006, a working group
of the Wuppertal Institute, the Institute for
Energy Issues and the Environment in Leipzig,
the Fraunhofer Institute für Environmental,
Safety and Energy Technology in Oberhausen
as well as the Gas-Wärme Institut in Essen
published a study on the potential of biogas
and, in particular, on transporting biogas
via the natural gas transmission system. The
Federal Biogas Association, the German
Farmers’ Association, the Federal Ministry of
the Environment as well as the Bavarian State
Ministries for Agriculture and Industry were
also involved in the study, which was commissioned
by the Federal Association of the
German Gas and Water Industries (BGW) and
the German Association of Gas and Water
Engineers (DVGW).
Magazine
The aim of this study was to examine the
potential of biomass to further reduce emissions
of greenhouse gases. The results indicate
that the prospects are good: There are
sound arguments in favour of feeding biogas
direct into the natural gas network. According
to the scientists involved, this could additionally
reduce emissions by approx. 15 million
tonnes of CO2 equivalent. If the agricultural
areas available were used efficiently, biogas
could cover an annual 100 billion kWh or 10%
of Germany’s current natural gas consumption
by 2030.
Thus, according to Claudius da Costa Gomez,
farmers would in future have the chance of
becoming energy farmers who would then
no longer be solely dependent on fluctuating
food prices. Gerd Sonnleitner, president of
the German Farmers’ Association, also argues
the same way: “German agriculture can now
make a considerable contribution to the environmentally
benign generation of energy from
energy plants.”
Specific Quality Requirements According
to the study, biogas is only used to optimal
economic efficiency when it is employed for
generating electricity and heat centrally. However,
system and gas industry requirements
can restrict its transmission through the
gas network. One major requirement is that
biogas is treated and cleaned before being
transmitted through the gas transmission system.
It must have the same quality as natural
gas and meet the requirements of the DVGW
Code of Practice G 260. The German Association
of Gas and Water Engineers (DVGW) and
the Federal Biogas Association have already
stipulated the necessary technical criteria in a
technical regulation – DVGW Code of Practice
G 262. The technology for processing raw biogas
into biomethane is already available. They
have also established that it is possible to
transmit the gas through the German gas network
as it has a dense structure and there are
only about 20 km between the feed-in points.
35

36 Magazine
SO FAR NEW
no plants in Germany yet
fermentation
residue:
agricultural use
Functional
schematic of an
agricultural
biogas plant
renewable
raw material
use for heat
as far as
possible!
heat electricity
CHP
plant
biogas
gas storage
fermenter
barn:
industrial fertilizer
(liquid manure)
organic
waste
Given the relatively favourable terms for electricity
from biomass anchored in the Renewable
Energy Sources Act (EEG), it is worth
while cultivating so-called energy plants, such
as maize and rye, for the production of biogas.
Some farmers are already taking advantage
biogas
New approaches:
use for power generation
use as automotive fuel
use in the space
heating market
(residential/industrial)
natural gas pipeline
methane
enrichment
biomethane
carbon
dioxide
of this option. And the number is increasing
fast. A comparison of various technologies for
generating biogas from energy plants showed
that, taking the cost-effectiveness aspects into
consideration, the production of a kilowatt
hour of biogas still costs 6 to 8 cents, but the
electricity proceeds laid down in the Renewable
Energy Sources Act compensate for this
disadvantage.

“We have achieved two goals with our study:
Firstly, we have determined ways of using
biomass which make both ecological and economic
sense and we have shown that it is
possible to feed biogas into the existing natural
gas system,” Professor Hennicke, President
of the Wuppertal Institute, said when presenting
the results of the study. Furthermore, he
added that biogas was also interesting as an
automotive fuel. In comparison with liquid
biofuels – in particular biodiesel – biogas had
the great advantage of being able to use agricultural
land much better. From the economic
point of view, biogas also had good possibilities
for this application. The cost of making
treated biogas to fuel NGVs is no higher than
the current filling station price for gas if the
conditions are favourable. The study therefore
recommends that more attention should be
paid to this use of biomass.
The E.ON Group and Renewable Energies
The E.ON Group’s share of renewable energies
in all energies used for power generation is
currently approx. 9.5%. Broader use is desirable
and considerable effort is being put into
its development. The current focus is on the
use of hydropower, wind energy and biomass.
Biomass is currently mainly used in coal-fired
power stations. However, E.ON also operates
four biomass power stations, each with a
power-generating capacity of 20 MW. This
makes E.ON one of the leaders in the use of
biomass for power generation in Europe.
The transportation of biogas through the public
natural gas transmission grid and its subsequent
use for the generation of power offers
another good opportunity to use renewable
energies in a sensible manner. However, in
the long term, biogas must be able to survive
on the market without subsidies. Rising world
market prices for fossil fuels would have
a positive influence on current biogas plans.
Magazine
Technically speaking, the German gas infrastructure
is in a position to transport the entire
volume of biogas by 2030. In isolated cases,
there may be local restrictions, as described,
due to low gas sendout in the summer, which
would make feed-in into the grid uneconomic.
However, this new technology for Germany
can only be successful if farmers, plant construction
companies and the energy industry
work together.
The E.ON Group is currently examining the
business opportunities for biogas in Germany
and whether it makes sense to construct
pilot plants to feed biogas into the gas system.
Here the Group is drawing on the experience
already gained at E.ON Nordic. In Sweden,
E.ON operates two biogas plants which feed
their biogas into the gas network, and a
biomass gasification plant. The biogas fed in
there is used as an automotive fuel. ¯
37