What happened to Gas Competition?
EIUG demands reform of the UK gas market
The cost of gas to industry has soared by 100% this year. In response to these dramatic price increases, the EIUG today (11 October 2000) publishes its demands for reform of the UK gas market.
“UK industry – accustomed to the benefits of a liberalised home market – has seen its competitive advantage eroded as gas prices trend towards continental levels, which are linked to the price of oil. Regulatory action is required at UK and European levels in order to re-establish a competitive market.”
“The EIUG demands a strengthening of offshore regulation and, in particular, for restrictions on the use of the interconnector by national monopoly gas producers.”
EIUG demands Reforms to re-establish Competition in Gas
The dramatic rise in UK gas prices is a subject of grave concern for industrial consumers. The effect of sales through the interconnector to the continental market has been identified as the principal cause. However, in response to the highest ever summer prices, consumers need to know whether there has been a fundamental shift in the nature of the UK gas market, or whether market imperfections are contributing to the situation.
EIUG has identified a number of areas of weakness in the gas market which require urgent action by UK and European regulators.
Strengthening Offshore Regulation
A clear definition/extension of Ofgem/Dti responsibilities is required. The interconnector should be regulated as a downstream pipeline. It should be unlawful for continental gas monopolies to purchase through the interconnector – this should be investigated by the European Commission.
Published tariffs are required for 3rd party access to the interconnector.
Liberalisation of the Continental Market
Gas to gas competition is required, as in the UK, decoupling the link to oil.
Recent mergers (e.g. BP/Amoco/Arco, Total/Elf/Fina) have caused a concentration of power offshore which does not facilitate competition and requires investigation. Market development requires reduction of market share (as UK in generation). Continental gas release schemes are required – this should be investigated by the European Commission.
Access to Information
Consumers cannot be confident of the way the UK gas market is operating with current levels of information. Flows through the interconnector and associated trades must be made transparent.Levels of gas storage should be made publicly available (as in the US). Transco’s maintenance schedules and effect on capacity must be made available well in advance.Daily real-time information on Transco balancing actions, which is available to shippers, must be made available to all gas traders and end users.
Investment is required in the UK to lower entry costs at congested entry points – recycling excess revenue from entry capacity auctions does not provide incentives for location-specific investment. There is continuing concern over capacity restrictions resulting from past under-investment by Transco.
Monitoring of the OCM
The operation of the on-the-day commodity market (OCM) is unsatisfactory – the problems caused by lack of liquidity in the market, and in particular the characteristic of rogue trades (including those between subsidiaries of the same company) setting system prices – should be investigated by Ofgem.
There are numerous examples of “events” where producers reduce gas supplies at terminals, Transco is forced to buy gas thereby causing the price to lift, and gas at terminals is then made available by producers.
Clear walls must be put in place between shippers and producers.
Notes to editors:
- Gas prices to industry – based on one-year forward prices – have risen from 11p/therm in January to 26p/therm in October 2000.
- For further information please contact Jeremy Nicholson on 020 7343 3159, or 07785 280 568 (mobile).