Shell Comments on Informatie- en consultatiedocument regulering en ontheffing LNG - 10 March 2006

Shell Comments on

Informatie- en consultatiedocument regulering en ontheffing LNG - 10 March 2006

Page Paragraph

Comment

5

Summary

The approach to regulation as a stimulator for more competition has to be

squared with security of supply requirements. We believe it is important to

realize that the European gas market (of which the Dutch market is a part) is

essentially long-term orientated. Especially if there is a growing dependency on

imported gas, regulation should not deter investment in key infrastructure such

as LNG receiving terminals and pipelines; therefore, such a situation may call

for less, rather than more regulation and hence more, rather than less

exemptions.

Also, attention should be given to the overall European regulatory landscape

and to maintaining a level playing field between Member States, also in view of

The Netherlands’ ambition to play the role of European ‘gasrotonde’.

12

Q 1

Capacity utilization of an LNG terminal, including the reaction to seasonal

swings, will be the result of market circumstances at the time. As pointed out in

the consultation document, LNG can be an additional source of flexibility; to that

end one can envisage seasonal differences in utilization.

12

Q 2

We have stated repeatedly that we see an increasing role for LNG in Europe.

We do not see a negative influence.

12

Q 3

Locations may be limited by maritime access and available coastal locations.

We believe it is important that planning procedures are supported by authorities

to allow for development in reasonable timeframes.

Given the possible capacity of individual LNG terminals, we do not believe that

location constraints will effectively curtail the construction of LNG terminals. The

situation in the USA also demonstrates that market forces determine the

possibilities for terminal development, including offshore options

12

Q 4

As the total possible capacity is higher than current domestic demand, this is

undoubtedly the case. One has to consider, however, that LNG terminals have a

scope that can, depending on location, extend beyond national boundaries. We

believe this will be the case for terminals in the Netherlands. This is also in line

with the Netherlands' ambition to develop into the "gasrotonde" of North West

Europe, and it is therefore suggested to leave number and size of terminal

developments in The Netherlands to be determined by market forces.

13

Para 30

It is unclear to which Article of the Gas Directive the statement "[...] zowel bij het

aanleveren van gas als bij het leveren aan klanten." refers. Also the meaning of

this statement is unclear.

13

Para 32

Annually changing tariffs may create uncertainties and may therefore have a

negative impact on investment decisions or long term contracts.

14

Para 34

In our view it is not consistent with the European Gas Directive Article 22 (3 (b)

(ii)) to put a general time-limit on exemptions. The Gas Directive calls for a case

by case evaluation and for decisions based on such an evaluation.

16

Q 5

See our statement under "Summary"

Gas Directive. Exemptions from TPA can be given under Article 22 of the Gas

Directive; we do not believe that the question of available locations should have

any influence on decisions on exemptions from TPA. ‘Over’ regulation may drive

potential investors to alternative opportunities elsewhere.

20

Q 7

We have no preference for a specific method, provided the resulting tariffs do

not render the project uneconomic.

20

Q 8

We agree that capacity hoarding should be discouraged (please see also our

answers to question 14). It is important, however, that any anti-hoarding

mechanism introduced does not compromise shippers' ability to fulfill their

contractual obligations towards their customers, including long-term supply

obligations.

21

Q 10

To facilitate LNG imports and thereby increase supply diversification it is in our

view advisable to have flexibility in arrangements. We therefore support the

notion of not imposing general restrictions.

22

Q 11

We believe that an open season is possible way to allow for the construction of

adequate capacities. A pro-rata allocation of capacities - we understand this to

be applicable only to the capacity above the capacity originally planned by the

primary investor - always carries the risk of resulting in uneconomic allocations.

22

Q 12

In our opinion there should be no general rule on or limitation of contract

durations.

22

Q 13

It is unclear what is meant by "bijzondere middelen".

As is stated in Article 22 (3 (b) (ii)) of the Gas Directive, we believe that any

decisions should be based on case by case evaluations. This Article prohibits in

our view generalized restrictions including the assumption of a set 15 year

break-even period.

23

Q 14

We agree with the concept of a use-it-or-lose-it principle. Given the time

requirements we believe that a two-month notice period appears reasonable. As

these concepts are a new feature in the market, combined with an increase in

flexibility in LNG contracts, we would advise to monitor how these provisions

work and to revise if required.

23

Q 15

We believe it is important to realize that, as mentioned, the European gas

market (and the Dutch market is no exception) is essentially long-term

orientated. We acknowledge the role of short-term arrangements, but it is a

limited one, compared to the overall size of the market. Likewise, a secondary

market will have a limited role.

23

Q 16

Given the limitations of a secondary market (see our answer to question 15) it

appears to be advisable to combine volumes as much as possible so as to

achieve sensible quantities. We therefore could envisage that a central

secondary market would make sense. Again, we would advise to monitor and

revise if required.

24

Q 17

It has to be considered that short-term capacity rights (e.g. less than one year

with no guarantee of renewal) have limited value, especially if use-it-or-lose-it

rules apply. As we understand, short-term capacity in Spain, which is quoted as

an example, is for two years.

We question whether setting aside a part of the capacity for short-term bookings

is practicable. Also, we are concerned that such a concept will have a negative

impact on pricing and economics, and hence might discourage investment in

new capacity.

Q 9)

therefore not appear on publicly available websites.

26

Para 86

As stated above, in our view it is not consistent with the European Gas Directive

Article 22 (3 (b) (ii)) to put a general time-limit on exemptions. The Gas Directive

calls for a case by case evaluation and for decisions based on such an

evaluation.

27

Q 20

As has been stated before, the European Gas Directive calls for a case by case

evaluation of any application for exemption. The Gas Directive also describes

the requirements to be met. It is unclear, how the criteria described in the

consultation document (e.g. paragraphs 95 and 96) will actually affect the

decision. The markets that can be supplied from an LNG terminal often go

beyond national boundaries (please also refer to our answer to question 4).

28

Q 21

We agree with the general notion described in the consultation document but

would again emphasize that projects of this size need a case by case

evaluation. It has to be realized that rates of return play an important role in

investment decisions when energy companies have to rank their investment

opportunities.

29

Q 22

We realize that the European Gas Directive requires separate ownership of the

LNG terminal and that the Dutch authorities have to implement this provision.

29

Q 23

Publication of infrastructure tariffs is a requirement of regulated TPA under the

Gas Directive (under which LNG terminals fall). We understand that paragraph

105 refers to infrastructure access tariffs.