Tuesday 24 March 2015

Oil & Gas UK and Gas Forum extremely disappointed at ACER decision

Issued by Oil & Gas UK and Gas Forum

Oil & Gas UK and the Gas Forum are extremely disappointed that the European energy regulator, ACER, has decided not to take forward their proposed amendment to the new EU Network Codes which sought to allow the UK to retain its existing ‘gas day’ of 6am-6am. The result of this decision is that, from 1 October 2015, the UK gas market will have to operate with two different gas days, 6am-6am upstream and 5am-5am in the downstream network at most terminals bringing UK continental shelf gas to the National Transmission System (NTS).

David Cox, managing director of the Gas Forum said: “The mismatch in gas days and in recorded gas flows from 1 October introduces the risk of increased imbalance charges for shippers at these terminals amounting to an estimated £20 million per annum. Part of these incremental costs will be passed on to UK consumers through the cost of gas purchased by suppliers at the National Balancing Point (NBP).  If NBP trading liquidity is impaired, the cost borne ultimately by UK consumers could be significantly greater.”

Marshall Hall, Oil & Gas UK’s energy policy manager, commented: “All network codes need to be capable of revision, based on cost-benefit analysis, to reflect changes in market structure or to address unintended consequences. Since July 2014, when we applied to ACER for the amendment, it has been clear that there is currently no proper governance for the emerging EU Network Codes and no possibility of amendment based on cost-benefit analysis. We supplied all the information requested by ACER but it was unwilling or unable to assess our key arguments about the efficiency of existing UK-continent interconnector gas trade or the costs and market risks being introduced in the UK by the Capacity Allocation Mechanisms (CAM) and Balancing (BAL) Network Codes.

“The early Network Codes such as CAM and BAL were based on a highly prescriptive, ‘one size fits all’ model of EU-wide harmonisation and were not subject to full assessment of their combined impact. The limits of this flawed approach have recently been recognised in the development of the proposed Tariffs Network Code.  It is regrettable that, in the UK, the EU network codes agreed so far will bring disruption, additional costs and a loss of trading flexibility at Bacton and no expected benefits to UK or other EU consumers.  Completing the internal market is indeed a worthy goal of national and  EU policy-makers and regulators but it needs to be done intelligently, based on the removal of observable barriers to trade, rather than a top-down imposition of a ‘one size fits all’ model.

“In its recent proposals for ‘Energy Union’, the European Commission proposes to increase the powers of ACER to strengthen EU-wide regulation and to oversee the development of the internal market. In our view, Member States and the European gas industry should be extremely wary of such proposals. Instead, the Commission should focus on ensuring that ACER is properly equipped to perform its existing roles and that governance procedures are developed to permit the proposal and consideration of amendments to the Network Codes.  At present, political ambitions are running far ahead of proper regulatory governance.

Oil & Gas UK and the Gas Forum are now engaged with NTS shippers to investigate new commercial and legal arrangements at the UK upstream-downstream interface to mitigate the financial cost of operating with two gas days and two sets of gas flow data.  However, a solution is by no means assured.

Ends

Notes to Editors

The ACER decision is documented here.

For more information, please contact Sally Hatch.

Oil & Gas UK is the leading representative organisation for the UK offshore oil and gas industry. Its growing membership, which comprises oil and gas producers and contractor companies, numbers more than 500.

The Gas Forum is a membership association representing the views of gas shippers, suppliers and other wholesale participants active in the UK market.