APPENDIX 12
Memorandum by The Gas Forum
1. INTRODUCTION
1.1. The Gas Forum is the national representative
body for all significant UK gas shippers and gas suppliers and
exists solely to serve the interests of its members. Our principal
objective is to represent the views of members, securing consensus
where possible through debate and discussion, exchanging ideas,
exploring and investigating industry issues through expert working
groups and via specific industry research.
1.2. On behalf of the Forum members, I welcome
the opportunity to respond to the Trade and Industry Select Committee's
new inquiry into the security of gas supplies ahead of the coming
winter. Forum members have been working intensively with Ofgem
and the DTI over recent years to ensure that market arrangements
are in place, which will help ensure maximum gas supplies are
available for the next few winters given the expected tight supply/demand
balance.
2. RECENT CHANGES
2.1. Ofgem has recently approved National
Grid's (NG) urgent modification to the Uniform Network Code (UNC)
which introduces more complex balancing incentives on shippers
ahead of this winter[20]
(which were not supported by the majority of members of the Gas
Forum). These changes were approved shortly after Ofgem approved
a change (Modification 0013A),[21]
which removed the potential for NG to step in and take actions
to reduce gas offtake at times of very high demand and potential
system stress. Whilst this change was generally supported by the
industry, it was a significant change, which requires corresponding
market action in the form of amended shipper behaviour and changes
to contractual arrangements between suppliers and large gas consumers,
without which the change could potentially increase the likelihood
of invoking emergency arrangements.
2.2. These uncoordinated changes may not have
the intended consequences due to the lack of time for parties
to respond before this winter. It could be argued that if Ofgem
felt further changes for this coming winter were needed, as a
result of the introduction of Modification 0013A, then they should
not have approved 0013A in isolation. Regardless, there is now
serious concern that these subsequent last minute changes to the
emergency cashout regime have introduced an element of complexity
and unmanageable risk as they have the potential to leave many
participants confused, others unable to react constructively and
overall to reduce confidence in the market. We should emphasise
that we do not object to further pragmatic change if this can
be made in time to alleviate some or all of these concerns.
3. DEMAND SIDE
3.1. We would like to emphasise that the
Gas Forum welcomes the work undertaken by the DTI and Ofgem through
the Ofgem Demand-side Working Group (DSWG). However, we are disappointed
that despite this working group being set-up a year ago by Ofgem,
it has only recently discussed gas issues in earnest.
3.2. There are many factors, which need
to be considered holistically, to address concerns for this and
future winters, such as the ability and willingness of customers
to offer demand side response. For instance, many customers are
physically unable to interrupt or turn down their offtake in under
three days, as highlighted in the DSWG. Neither have the arrangements
on the continent been explored, for example, in the event that
there is an emergency in the UK and similar problems on the continent,
what powers do the relevant bodies have to curtail exports to
the UK? Until all those concerned explore these issues, and many
more, in a coordinated manner, price incentives alone will not
resolve concerns.
3.3. Gas Forum members take considerations
of security of supply seriously and are very happy to work with
the rest of industry in order to address any issues. While high
prices may provide an incentive to provide demand side services,
particularly for the extremely large gas users, many customers
may find this insufficient compared to their own requirements
to continue with production processes to satisfy orders. The Gas
Forum therefore welcomes initiatives to communicate to customers
the need for them to participate in demand side activities to
protect the gas system.
4. NEXT STEPS
4.1. The Forum welcomes the Ofgem seminar,
"Options for energy buyers this winter", planned for
7 November. However, we also believe it would be beneficial if
Ofgem and NG/IDNs gave a seminar on emergency procedures to both
shippers and customers ahead of this winter to familiarise the
industry with the new emergency arrangements, given the new Network
Emergency Coordinator safety case that has been agreed by the
HSE and fundamental changes to the UNC that have been agreed by
Ofgem. Such a seminar would provide an opportunity for the industry
to go through emergency scenarios step by step under various conditions
and to identify potential issues that may not have been considered.
It is the Forum's view that it would be preferable for such a
seminar to take place before December 2005.
4.2. Gas Forum members consider that further
Government intervention is likely to be counter-productive in
ensuring/enhancing security of supply at this stage of the winter.
It should also be noted that there are already existing emergency
procedures in place to protect supplies to domestic consumers.
5. CONCLUSION
5.1. The Gas Forum believes that there may
be an issue with continuity of supply for this winter (depending
on the actual severity of weather and demand). The supply and
demand balance will undoubtedly be tight although we are inclined
to support NG's view that provided all parties in the supply chain
co-operate then the UK will be able to cope. However, we consider
that any additional market based intervention would not be constructive.
5.2. It would be helpful if in the longer
term customers and shippers were invited to the JESS working group
to participate in the assessment of risks to Britain's future
gas and electricity supplies. In the same vein, we welcome the
inclusion of customers in the Ofgem seminar, as we believe that
greater transparency can only assist in demand side actions.
5.3. I hope that the Gas Forum's comments
have been useful and we look forward to continued work with the
TISC, the DTI and Ofgem to develop better solutions to resolve
security of supply issues ahead of this winter and the next.
25 October 2005
20 UNC modification 0044 "Revised Emergency Cash-out
& Curtailment Arrangements". Back
21
UNC modification 0013A "Amendment to Transco's rights to
interrupt for supply/demand purposes". Modification Reference
Number 0013a(0740a). Back
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