NRAs Open Letter Call for evidence on the use of the gas - - PowerPoint PPT Presentation

NRAs’ Open Letter

Call for evidence on the use of the gas interconnectors on Great Britain’s (GB’s) borders and on possible barriers to trade Interconnector Analysis Industry Workshop, 21 November 2012 Darren Reeve, Commercial Director

Introduction

Interconnector

• Provides pipeline capacity
• Customers nominate their flow requirements
• Offers considerable within day flexibility

Key Messages

• Nominated flows through Interconnector are highly efficient
• There is a clear bias to UK Exports
• Have identified the reason for the bias

Import Capacity Export Capacity Interconnector 810 GWh/d 630 GWh/d 34,000 MW 26,000 MW Electricity Interconnector 500 to 2,000 MW

NRAs’ Analysis

1 January 2009 to 30 June 2012 (Includes Planned Maintenance Periods)

Flow vs Price Data

Interconnector Flows

• Actual flow is measured

Day Ahead Price Data

• Many prices are actually assessed several days in advance
• Sunday, Monday, Bank Holidays

Several Sources of Price Data

• NRAs: Bloomberg (average of 3 broker prices)
• Interconnector: Heren (price assessment at 16:30)
• Eclipse*: Spectron (average price within a window)

Good Alignment

Flows Actual, Measured, Accurate Prices Assessed, Day(s) Ahead

compared against

* Interconnector have commissioned Eclipse to undertake independent analysis

NRAs’ Outliers

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 20
• 15
• 10
• 5

5 10 15

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d) ZEE > NBP price NRAs’ Outliers (NRAs’ price data)

1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods)

p/therm

NRAs’ Outliers

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 20
• 15
• 10
• 5

5 10 15

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d) NRAs’ Outliers (using Interconnector’s price data)

1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods)

p/therm ZEE > NBP price

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 20
• 15
• 10
• 5

5 10 15

Interconnector Analysis

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d) p/therm NRAs’ Outliers Other data points (all using Interconnector’s price data)

1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods)

ZEE > NBP price

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 8
• 6
• 4
• 2

2 4 6 8

Interconnector Analysis

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d)

1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods) 24 to 27 Dec 2011 24 Dec 2009 25 & 26 Dec 2010 Days prior to or shortly after the 2011 Planned Maintenance

p/therm ZEE > NBP price

Highly Efficient Bias to UK Exports

Capacity Capacity

GB Export Bias

Zero reserve prices for short term capacity

• Under-recovery on capacity

Escalating NGG commodity charges

• Recently increased by a further 29%
• Shippers can opt to utilise the NTS Optional

Commodity (Short-Haul) Tariff

Capacity Capacity Under-Recovery Commodity

Capacity under-recovery Increasing incentive to avoid high commodity charges

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 p/therm NTS Entry Commodity Charge

Flow Decision

NBP Hub Bacton Beach IUK Bacton Zee Hub

1.6 p/th 0.02 p/th BBL Production 0.5 p/th 1.6 p/th 0.5 p/th

Currently:

~1 p/th incentive to ship Beach gas to Zee AND ~2 p/th required for UK imports Unintended consequence of zero reserve prices for capacity

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 8
• 6
• 4
• 2

2 4 6 8

NBP to Zee Price Differential

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d)

1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods)

p/therm ZEE > NBP price

Capacity Capacity

Highly Efficient Bias to UK Exports

Appropriate Price Differential

• 650,000,000
• 450,000,000
• 250,000,000
• 50,000,000

150,000,000 350,000,000 550,000,000 750,000,000

• 8
• 6
• 4
• 2

2 4 6 8

Net flows from Belgium to GB Net flows from GB to Belgium NBP > ZEE price Net flow (kWh/d) p/therm ZEE > Bacton price

Capacity Capacity UK Export Flows plotted against the appropriate price differential (i.e. Bacton Beach to ZEE) 1 January 2009 to 30 June 2012 (Excludes Planned Maintenance Periods)

Very few FAPDs (Flows Against Price Differentials)

FAPDs Number of Days 17 % of days 1.4% % of volume 0.3% % of value 0.03%

Highly Efficient Justified Export Bias

Within Day Renominations

2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 at 14:00 at 12:00 at 10:00 at 08:00 Flow

Nominations Increasing Interconnector nominations following GB supply issues (and a gas balancing alert) kWh/h Hourly Nominations and Flows Price differential was assessed on 31 December at 0.75p/th 4 January 2010

Conclusion

IUK provides a highly flexible service

• Many companies own capacity
• Active secondary market

Analysis demonstrates Interconnector flows are efficient

• NRAs’ analysis does not provide a sound platform for further

policy interventions directed at interconnector pipelines Distorting effect of high commodity charges in GB

• Creates a bias to GB exports via the Interconnector
• Results from the under-recovery of NGG capacity charges

High (and rising) commodity charges are within the NRA’s power to address Would bring GB more in line with Continental Europe

NRAs’ Open Letter

Call for evidence on the use of the gas interconnectors on Great Britain’s (GB’s) borders and on possible barriers to trade Interconnector Analysis Industry Workshop, 21 November 2012 Darren Reeve, Commercial Director