Memorandum submitted by Growhow UK Ltd
Growhow UK Limited is the largest industrial
consumer of gas in the UK (used as feedstock for manufacture of
ammonia and fertilisers) and a major consumer of electricity.
We have followed closely the evidence that has given to the Committee.
There are a small number of key inaccuracies in the information
has been given to the Committee that we feel strongly need to
be addressed. In the light of this, we have elected to submit
the following brief note.
1. LNG DELIVERIES
TO BOTH
UK AND US
Deliveries to the Isle of Grain (IoG) in Winter
2007-08 have been well below capacity. In Q4 2007 seven cargoes
were delivered and in Q1 2008 three cargoes. So out of a total
of "26 slots" only 10 were used this winter. It was
suggested that LNG was not readily available and that the high
price of LNG was a cause of high gas prices in the UK.
It was further suggested that no LNG deliveries
are being made to the US. The table below shows that the US has
slightly more dependence than the UK on LNG imports. LNG imports
to the US have continued through winter 2007-08 and into summer
2008. US market prices for gas remain well below UK prices as
shown in the data later. In our view the TPA access arrangements
at Isle of Grain are inadequate to ensure an optimum flow of LNG
into the UK market.
2. FORWARD PRICING
AND THE
COMPETITIVE DISADVANTAGE
FACED BY
LARGE CONSUMERS
We wish to be clear that as a large consumer
of gas we wish to be able to lock in forward prices for our business.
However we are almost always faced with the problem that UK forward
prices are grossly uncompetitive compared to the US and mainland
Europe and this forces us to rely on short term pricing. Essentially
we are forced to buy short term in order to have some chance of
buying gas at competitive prices. This is not a position with
which we are comfortable.
The competitive disadvantage we face is illustrated
below.
| Forward price (p/therm)
| Winter 2008-09 | summer 2009
|
| UK | 104 | 95
|
| USA | 61 | 72
|
| Europe | 83 | 88
|
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3. MEASURES TO
ADDRESS INEQUALITIES
It is important to emphasise that the UK has sufficient capacity
for the supply of gas to the market (pipelines and LNG) but the
capacity is not being utilised. The problem is lack of physical
gas being delivered to the UK.
There are a number of measures we believe government could
take to improve the position of UK industrial gas consumers. These
include:
(a) Suppliers who trade gas and electricity in several
European countries as well as UK should be forced to offer UK
consumers the same terms and conditions and pricing arrangements
that they offer in other European countries. (This may include
gas prices linked to oil though we are not arguing for a major
move to oil indexation. In the long term we wish to see gas to
gas competition in a fully functioning UK market).
(b) The UK requires much more storage capacity. The market
is failing to deliver this and difficulties obtaining planning
permissions are not the only reason. The government needs to take
action to encourage development of new storage. Ideas include
an obligation on gas suppliers to the domestic sector to hold
stored gas for winter, and a small tax on gas to raise funds to
`seed' investment. (0.1p/therm per annum would raise £35
million per annum).
(c) There need to be major changes to allow proper Third
Party Access to LNG facilities at IoG and Milford Haven to ensure
capacity is utilised. At present, LNG supply to IoG is severely
hampered by a combination of:
(i) the existence of a preferred supplier agreement with
only three companies; and
(ii) insufficient notice provision for available slots
(7-10 days). Cargoes would need at least 30 days notice of a slot
to make IoG a viable destination for LNG.
Deborah Pritchard Jones
7 July 2008
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