Draft for consultations

Graph No. 4 – Analysis of the security of supplies in the Czech Republic according to the N-1 formula

2. 
   Scenarios of exceptionally high gas demand
   

1. 
   Consumption of the customers portfolio of gas traders in the Czech Republic - annual for the last two years, average daily winter for last two years and maximum daily for the last 20 years (for new gas traders for as long as they have been operating):
   

We have selected the scenario for the last two years because only after liberalization of the market in 2007, were new licences for gas trading issued and new gas traders started their gas supplies in 2009.
Natural gas consumpion in the Czech Republic:
in 2009 – 8.161 billion m³, 86,213 GWh

in 2010 – 8.979 billion m³, 95,138 GWh

in 2011 – 8.058 billion m³, 85,645.6 GWh
Maximum historical daily consumption on 23 January 2006 at -16.9°C:
67.6 million m³, 713 GWh
Maximum historical daily consumption on 23 February 2011 at the average daily demperature of -10.1°C:
52.816 million m³, 559.738 GWh

2. 
   Customer consumption in the households category to which a gas trader supplies gas - annual for the last two years, maximum daily for the last two years and maximum daily for the last 20 years (for new gas traders for as long as they have been operating):
   

We have selected the scenario for the last two years because only after liberalization of the market in 2007, were new licences for gas trading issued and new gas trader started their gas supplies in 2009.
Natural gas consumption in the Czech Republic for the households customer category:
in 2009 – 2.514 billion m³, 26,641 GWh

in 2010 – 2.905 billion m³, 30,785 GWh

in 2011 – 2.4439 billion m³, 25,889 GWh
Maximum daily consumption of households customer category over the last two years:
20.3 million m³, 214 GWh
Maximum daily consumption of the households customer category - historical:
23.7 million m³, 250 GWh

3. 
   Interruption of supplies over the main transmission infrastructures or from underground gas storages used by a gas trader in different seasons (summer, winter)
   

In relation to the value of the N-1 coefficient for the Czech Republic of 288%, the failure of any individual transmission infrastructure would not substantially affect the supply of natural gas to end customers as was verified during the January 2009 crisis followed by a simulation training in November 2009, see chapter 3.5. The following mechanisms for securing the natural gas supply would be used if a failure occurred:

• 
  Increased gas extraction from underground gas storages
  
• 
  Use of reverse flow of the northern branch of the transmission system
  

If these steps are not sufficient, the transmission system operator would limit gas supplies to a group of customers according to the decree on gas industry emergencies.

4. 
   The frequency and length of interrupted supplies and a historical description of supply interruptions including the duration, volume of gas, affect on customers:
   

Historically, the Czech Republic has recorded two cases of a serious breach in the supply of natural gas. The first case dates back to January - March 2006 where the deviation between the nominal value and the actual gas supply from Russia ranged from 10% to 30%, which meant that of 23.25 million m³/day up to 7 million m³/day was not delivered and on 9 January - 17 January and then 30 January - 1 February and 20 February – 22 February no supplies were recorded.
The second case dates back to January 2009 when no gas from Russia was supplied from 7 January to 19 January. The operator of the transmission system reversed the flow of natural gas from West to East and 18 million m³ was supplied to the Czech Republic via BTS Sayda and extraction from underground gas storages was increased up to 34 million m³/day to cover the demand of the Czech Republic which was slightly over 50 million m³/day at that time. The worst situation was reported on 12 January 2009 when the consumption increased to 57.3 million m³ and the extraction from the underground gas storage was increased to the maximum. The Czech Republic also transmitted 33 million m³ of gas daily from Olbernhau to Waidhaus for Bayerngas. None of these supply breaches affected customers in the Czech Republic because increased gas extraction from the underground gas storages and reverse flow of natural gas from Germany via the border trasnfer station Hora Sv. Kateřiny was successfully arranged to supply all customers and no one had to be limited in any way.

5. 
   A potential future supply breach by gas producers in third countries affecting gas traders with regard to their occurrence in the past and likelihood:
   

Considering the high N-1 coefficient, continued expansion of capacity of the underground gas storage and prepared construction of new underground gas storage as well as construction of the Gazela gas pipeline to supply natural gas from NordStream and OPAL gas pipelines, the affect of a serious supply breach will further decrease. Several points will be used on the Gazela gas pipeline to interconnect with the transmission system of the Czech Republic so if there is insufficient gas, customers will also be supplied from this gas pipeline. Also, the reverse flow of the northern branch of the gas transmission system must be mentioned, it can be used in emergencies to supply Slovakia with a daily capacity of up to 25 million m³. Last but not least, is a project for constructing a north-south gas pipeline corridor, connecting LNG terminals in Swinoujscie (Poland) and Krk (Croatia) and finally the assumed interconnection of the Břeclav compression station with the virtual trade point Baumgarten in Austria where the Nabucco and/or SouthStream gas pipeline should end.

6. 
   Description of the potential consequences of the breaches by individual scenarios (for this year and the next two years):
   

For the above reasons our opinion is that terminating supplies from the main transmission infrastructures or underground gas storage as defined in Regulation (EU) No. 994/2010 on measures to safeguard the security of gas supply would not cause serious problems in supplying customers.

3. 
   Gas supply interruption scenarios
   

Terminating supplies from the main transmission infrastructure (particularly gas flow termination via BTS Lanžhot, Hora Svaté Kateřiny, Brandov, Waidhaus, Těšín) or the impossibility of using one or more underground gas storages in the Czech Republic in different seasons (summer, winter):
The main transmission infrastructures of the Czech Republic are BTS Lanžhot, HPS Hora Svaté Kateřiny, BTS Brandov, BTS Waidhaus in Germany and BTS Cieszyn in Poland. Each scenario of exceptionally high gas supply demand considered an interruption of natural gas supply from one of these border transfer stations.
To analyse the consequences of the impossibility of using one or more underground gas storage during exceptionally high natural gas demand, scenarios for the failure of individual underground gas storages connected to the transmission system of the Czech Republic (UGS Uhřice, UGS Dolní Dunajovice, UGS Háje, UGS Lobodice, UGS Štramberk, UGS Třanovice, UGS Tvrdonice) as well as a scenario of the combined failure of multiple underground gas storages affecting gas supplies in the Czech Republic (UGS Lobodice, UGS Štramberk and UGS Třanovice) were considered.

4. 
   Description of the probable consequences of the above failures by individual scenarios:
   

The failure of individual border points has no affect on the natural gas supply in the Czech Republic but affects the supply to Germany or Poland. The only possible natural gas supply risk in the Czech Republic would be the concurrent failure of supplies via BTS Lanžhot and BTS Hora Svaté Kateřiny. However, this scenario is highly unlikely.

Table No. 16 – Interruptions of the infracture and the consequences

Interruption of infrastructure	Consequence
BTS Lanžhot	No danger to the natural gas supply in the Czech Republic even in winter
BTS Hora Svaté Kateřiny	No affect on the natural gas supply in the Czech Republic
BTS Brandov	No affect on the natural gas supply in the Czech Republic, affect on natural gas transit to Germany only
BTS Waidhaus	No affect on the natural gas supply in the Czech Republic, affect on natural gas transit to Germany only
BTS Český Těšín	No affect on the natural gas supply in the Czech Republic, affect on natural gas transit to Poland only
UGS Uhřice	No affect on the natural gas supply in the Czech Republic
UGS Dolní Dunajovice	No affect on the natural gas supply in the Czech Republic
UGS Háje	No affect on the natural gas supply in the Czech Republic
UGS Lobodice	No affect on the natural gas supply in the Czech Republic
UGS Štramberk	No affect on the natural gas supply in the Czech Republic
UGS Třanovice	No affect on the natural gas supply in the Czech Republic
UGS Tvrdonice	No affect on the natural gas supply in the Czech Republic

According to this table, the failure of a single underground gas storage will have no affect on the natural gas supply in the Czech Republic both in the summer and winter. Problems could arise only if concurrent failures of UGS Lobodice, Štramberk and Třanovice occur. If this combined failure occurs, the natural gas supply to Northern Moravia would be impaired (in the case of the highest winter consumption, up to 38% of the daily consumption could be missing in this region). However, this situation is almost impossible.

In relation to the interruption of natural gas supplies in January 2009 and to prepare the gas industry of the Czech Republic for a repeat of the natural gas supply termination from Ukraine to Western Europe, a review of the preparedness of new mechanisms of declaring and the activities of the Competent Authorities during emergencies in the gas industry according to decree No. 334/2009 Coll. on emergencies in gas industry was requested.

3.5 Simulated emergency training on 12 November 2009:

A first consumption level alert resulted in natural gas supply savings in the Czech Republic (1.2% of the natural gas consumption), however some customers need two days to switch to alternative fuels (about 3).

A fourth consumption level alert led to total natural gas savings at distribution companies and direct customers of about 12% in the transmission system on the actual natural gas consumption under current conditions (climatic, production, heating etc.).

The simulated training only included customers with annual natural gas consumption over 5 million m³.

Limiting consumption, during the gas industry emergency training, applied to A, B1, B2 end customers according to decree No. 334/2009 Coll. of 12 November 2009 because the average temperature was 7.1°C on 12 November 2009. Heating customers (type C) could not decrease natural gas consumption because the vast majority of facilities were not operating. If the temperatures had been lower, we assume actual natural gas consumption savings at the fourth alert level of about 25 %.

4. 
   Measures, volumes and capacities required to comply with the infrastructure and supplies standards and their schedule
   

4.1 Preventive measures for mitigation of identified risks:

The identified risks (see clause 3.3) are highly unlikely because they would have to occur concurrently to affect supplies to customers. The analysis shows that at least three adverse circumstances would have to occur at the same time, i. e. failure of the highest infrastructure, substantial extraction reduction from underground gas storages and bad weather conditions for a long time. The potential, but still very low likelihood, can be further decreased in several ways.

With regard to the risk of concurrent failures of BTS Lanžhot and BTS Hora Svaté Kateřiny, the following measures could be taken:

• 
  increase the volume and extraction capacities of the underground gas storages in the Czech Republic;
  
• 
  direct connection of the Czech transmission system to Nabucco / SouthStream gas pipeline;
  
• 
  or a combination of these.
  

One way of reducing the potential risk of a concurrent failure of UGS Lobodice, Štramberk and Třanovice would be constructing a "Moravia" gas pipeline to northern Moravia (see "Ten-year development plan in the Czech Republic 2012 - 2021" published on the website of the transmission system operator, http://www.net4gas.cz).

Interruption of supplies from Slovakia (BTS Lanžhot):
Considering the actual gas flows, this interruption would only affect supplies to Germany and France, however, these countries have other resources available and therefore, interrupting the natural gas supplies would not seriously affect the natural gas supply in these countries. The situation will greatly improve after the Gazelado gas pipeline is commissioned in 2013 when substantial amounts of natural gas for Germany will be supplied via this new gas pipeline via BTS Brandov and BTS Waidhaus and any interruption of the supplies via BTS Lanžhot will be marginal for supplies to Germany.
Interruption of supplies to Poland via (BTS Cieszyn):
Considering the 0.5 billion m³/year supplied, daily supplies from the Czech Republic to the Polish transmission system are not substantial and limitations applicable to some Polish customers can only occur if the natural gas supply is terminated long-term.
Interruption of supplies to Germany via BTS Waidhaus
Significant amounts of natural gas are transmitted to southern Germany and then to France via BTS Waidhaus partially from BTS Lanžhot and partially from BTS Hora Sv. Kateřiny. In an infrastructure failure, there could be some problems with the natural gas supply to customers in these countries, particularly if the termination lasts for a long time. In January 2009, when natural gas supplies via BTS Lanžhot were terminated, southern Germany was supplied via BTS Hora Sv. Kateřiny, which would, however, be impossible if BTS Waidhaus failed. This situation would result in a risk for the natural gas supplies of customers especially in southern Germany.
Interruption of natural gas supplies via BTS Hora Sv. Kateřiny to Germany
Historically, BTS Hora Sv. Kateřiny was very important in supplying natural gas to the Eastern part of Germany when Germany was separated. Over time, the situation has changed and today, the gas pipelines between BTS Hora Sv. Kateřiny and the Olbernhau compression station as well as BTS Hora Sv. Kateřiny and the Sayda compression station are used bi-directionally and they also supply natural gas to the Czech Republic.

4.2 Measures for supplies security standard:

1. 
   under extraordinary temperature conditions over a seven-day period of peak demand occurring with a statistical probability of once in 20 years:
   

Because switching from town gas to natural gas took place in the Czech Republic from 1990 to 1995, natural gas consumption statistics are only available from 1995.
The daily value for a seven-day period of peak demand at -14°C, according to the security standard of supplies for the Czech Republic, is 47,982 thousand m³, or 506,315 MWh.

2. 
   During an extraordinary high gas demand period of at least 30 days occurring with a statistical probability of once in 20 years:
   

A period of extraordinary high gas demand only occurs for a short time and has never lasted for more than 10 days; during this period, the daily consumption was about 50 - 57 million m³ for approx. 10 days in January 2009. As the consumption of protected customers accounts for about 35% of the total natural gas consumption during winter, the security standard would have to be 19.95 million m³/day. This can be secured for 30 days even if all cross-border supplies are interrupted by extraction from underground gas storages.

3. 
   During a breach of the single largest gas infrastructure for at least 30 days under average winter conditions:
   

No such period has occurred in the Czech Republic, however, the experience of the interruption of the natural gas supply in January 2009 followed by the simulation training in November 2009, see above, has shown that supplies from underground gas storages would be sufficient to supply the natural gas to protected customers under average winter conditions, see also clause b).

1. 
   The options of arranging the security standard in the Czech Republic are as follows:
   

1. 
   diversification of natural gas resources:
   

The original scheme of 75% natural gas supplies from Russia and 25% natural gas supplies from Norway significantly changed after liberalization. Short-term contracts on the EU spot market are used to a great extent and were 33.59% in 2011, whereas Russian and Norwegian shares were 63.44% and 2.95%, respectively. The Nord Stream and OPAL gas pipelines have greatly contributed to the diversification of transmission routes and they will be connected to the Gazela gas pipeline constructed in the Czech Republic for transmitting about 30 billion m³ of gas each year and to the Czech transmission system at several connection places.

2. 
   storage of natural gas in underground gas storages:
   

Storing natural gas in underground gas storages is the second most important measure for the supply security standard because the capacity of all underground gas storages in the Czech Republic is 2.881 billion m³, which is about 30% of total annual consumption.

3. 
   long-term natural gas supplies contracts:
   

Gas traders from the Czech Republic have concluded long-term contracts for natural gas supplies with Russian gas producers of 8 billion m³/year until 2035 and Norwegian gas producers of 2 billion m³/year until 2017.

4. 
   increasing gas extraction:
   

Increasing gas extraction is not effective for the Czech Republic to arrange the supply security standard because national gas extraction's share is just 1.5% of the annual natural gas consumption.

5. 
   the use of alternative fuels combined with contracts under which the natural gas supply can be terminated:
   

Because of the reliable natural gas supply to date, this possibility is not widely used in the Czech Republic.
4.2.2. Proof of arranging the security standard with the energy market operator and the Energy Regulatory Office to which supervision was delegated:

1. 
   for gas stored in underground gas storages in the Czech Republic, confirmation of the amount of stored gas from the underground gas storage operator and a document that proves the arrangement of fixed transmission capacity at the virtual gas storage entry point;
   
2. 
   for gas stored in underground gas storages other than in the Czech Republic, confirmation of the amount of stored gas from the underground gas storage operator and a document that proves the arrangement of the fixed transmission capacity to the Czech Republic;
   
3. 
   for diversified gas resources, confirmation of the amount of gas from the supplier as well as a document that proves the arrangement of fixed transmission capacity to the Czech Republic;
   
4. 
   for increasing gas production, confirmation from the relevant gas producer;
   
5. 
   agreement on a swap operation with reference to the instrucments according to a) to d);
   
6. 
   confirmation of the involved protected customer on the possibility of using alternative fuels and a copy of a gas supply contract based on which the supply can be interrupted.
   

4.2.3. Definition of a protected customers according to Article 2, clause 1, paragraph a) and b) of the Regulation (EU):

Based on the decision of the Competent Authority mentioned in § 2 of the decree on emergencies in the gas industry, this group includes the following C1, D and F:

1. 
   group A is the consumption points of customers with a predicted annual consumption of more than 630 MWh with the possibility of fully or partially switching to an alternative fuel;
   
2. 
   group B1 is the consumption points of customers mainly with technological consumption up to a predicted annual consumption of more than 52,500 MWh not included in groups A or D; these consumption points are included in this group if the sum of actual needs in the last quarter of the previous year and the first quarter of this year is less than 70% of the total consumption for the period from 1 April of the previous year to 31 March of this year; if no actual consumption is available, it will be replaced by the planned monthly consumption specified in the distribution contract;
   
3. 
   group B2 is the consumption points of customers mainly with technological consumption up to a predicted annual consumption of 4,200 MWh to 52 500 MWh not included in groups A or D; these consumption points are included in this group if the sum of needs in the last quarter of the previous year and the first quarter of this year is less than 70% of the total consumption for the period from 1 April of the previous year to 31 March of this year; if no actual consumption is available, it will be replaced by the planned monthly consumption specified in the distribution contract;
   
4. 
   group C1 is the consumption points of customers mainly with consumption for heating up to a predicted annual consumption of more than 4,200 MWh not included in groups A or D; these consumption points are included in this group if the total consumption for the last quarter of the previous year and the first quarter of this year is 70% or more of the total consumption for the period from 1 April of the previous year to 31 March of this year and if the customers in this group provide more than 20% of their total produced thermal energy to households, health care facilities and social service facilities; if no actual consumption is available, it will be replaced by the planned monthly consumption specified in the distribution contract;
   
5. 
   group C2 is the consumption points of customers mainly with consumption for heating up to a predicted annual consumption of more than 4,200 MWh not included in groups A or D; these consumption points are included in this group if the total consumption in the last quarter of the previous year and the first quarter of this year is 70% or more of the total consumption for the period from 1 April of the previous year to 31 March of this year and they are not classified in group C1; if no actual consumption is available, it will be replaced by the planned monthly consumption specified in the distribution contract;
   
6. 
   group D is the consumption points of customers with a predicted annual consumption per year of more than 630 MWh producing foods for daily consumption, including but not limited to perishable food processing, animal production operations with animal death hazard, producing fuels, communal incinerator plant waste, power for public transport vehicles, health care facilities, social service facilities²⁾, basic elements of the Integrated Emergency Response system, reconstruction facilities, crematoriums as well as the Czech National Bank; specific customers are classified by the transmission system operator for the consumption points of the customers connected directly to the transmission system or distribution system operator for the consumption points of the customers connected directly to the distribution system (hereinafter the "competent operator") for informing the local and competent regional authority or the Prague Municipality Office.
   
7. 
   group E is the consumption points of customers with a predicted annual consumption of 630 MWh to 4,200 MWh not included in groups A or D;
   
8. 
   group F is the consumption points of customers with a predicted annual consumption per year of up to 630 MWh and households.
   

The supply security standard was provided for the winter months of 2011 according to § 73a of the Energy Act at a daily volume of 40,766 – 51,585 mil. m³ (430.11 – 544.313 MWh). This applies to gas traders or gas producers who supply gas to protected customers.

5.