Thursday 30 June 2005

Gas Market Information: UKOOA Welcomes Completion in July of Two Year Improvement Programme

Friday 1st July is due to see the completion of a two year programme of measures, led by DTI and supported by UK Offshore Operators Association (UKOOA), Transco and Ofgem, to enhance substantially the amount of information provided to the UKs gas market, with the publication of near-to-real time flows of gas into the National Transmission System (NTS).

In a separate move, Ofgem announced on Monday (27 June) that it will in future consider proposals to make more information on the gas market available on a case-by-case basis and that it would not amend Transcos gas transporters licence in order to limit the amount of information provided to the market.  UKOOA and its members are currently assessing the full implications of this, but is concerned that this could allow company sensitive data to be released into the public domain.

Mike Tholen, UKOOAs Economics and Commercial Director, said: "We welcome the completion of the programme of improvements which should substantially benefit the whole gas market.  While producers have every intention of continuing to supply Transco with information to aid its long-term planning of UK gas supplies, our members will want to be assured that this information will not be made public as a result of Ofgems latest decision.  We are examining the details and implications of the decision for gas producers operating on the UK continental shelf."

UKOOA supports the increased provision of information to assist the functioning of the gas market, as was discussed during talks led by DTI during 2003-4, to which Ofgem, Transco and UKOOA were parties.  This reached agreement in March 2004 of three phases of additional information disclosure (i.e. additional to the large body of information which was already provided to the market via Transco's web-site).  These three phases which are now coming to their conclusion are:

• Phase I improved flow of data to Transco regarding planned and unplanned maintenance offshore and the likely effects on supplies from terminals into the National Transmission System (NTS): this phase was introduced in 2003 and continues;
• Phase II improved participation in Transcos annual, long term planning exercise, known as the TBE process; and agreement to inform Transco on availability of gas during periods of tight supply: both were introduced in 2004 and continue (it should be noted that producers have for many years taken part in the TBE process, but a change to Transco's licence introduced in 2002 threatened the release into the public domain of this information which is commercially sensitive, as it contains companies' forward plans for investment and production, field by field; the agreement in March 2004 enabled such information to be protected from release and, as a result, participation by producers reached its highest ever);
• Phase III - information of planned and real time flows into the NTS: - Three of the four information categories to be provided in this phase have already been introduced (1. deliverability of gas with respect to planned maintenance; 2. sub-terminals' end of day flow information and, 3. forecast flows into the NTS, aggregated into north and south zones). - From July 2005, item four north and south zone actual gas flows into the NTS will be released hourly, thus completing the overall agreement. - The purpose for northsouth zonal aggregation of gas flows is that the parties to DTI talks all recognised that individual sub-terminal flows risked revealing commercially sensitive information about some companies operations and that this would be prejudicial to their legitimate interests.  Ofgem issued a letter to market participants on 23^rd October 2003 recognising this point.

Mike Tholen added: "The last item of information in the third and final phase is now about to be implemented.  This item - hourly flows of gas into the NTS - is probably the most useful of all in that it will improve understanding of what is happening in the short term in the traded market.  It should be noted, though, that information about the linepack (the total volume of gas at any given time) in the NTS has long been published by Transco.  In essence, these two items of information will probably tell a very similar story."

NOTE TO EDITORS

1. The UK Offshore Operators Association (UKOOA) is the representative organisation for oil and gas companies licensed by the UK government to explore for and produce hydrocarbons offshore around the British Isles.  It has 33 members.
2. Early in 2005, DTI commissioned Global Insight to examine the workings of the forward traded gas market, where prices have been high.  It is this which has caused the greatest concerns among large industrial users (note: about 70% of the gas produced from the UKCS is sold under long term contracts, with the balance of ~30% being traded at the NBP (National Balancing Point) both short term and, to a lesser extent, in the forward market). Global Insights report found that the UKs forward gas market was technically proficient, exhibiting all of the right characteristics, but that it lacked the necessary scale and liquidity to reach maturity.  It probably needs to be on a north-west European scale to develop and function as a fully fledged market in all respects.  By contrast, the short term traded market at the NBP does not exhibit any such shortcomings and is fully liquid.
3. The proposal for a modification to the Uniform Network Code (ref. no. 006 previously no. 727) is for the publication of near to real time information of flows of gas into the NTS at each sub-terminal.  This is the same information as the last item in Phase III above, except that it would not be in aggregated form which Phase III is.  UKOOA notes that such disaggregated information risks exposing individual companys positions which Ofgem has recognised in its letter of 23^rd October 2003 should not happen.  Ofgems decision on this proposal is awaited.
4. For some time UKOOA has noted the lack of an in-depth analysis into the overall benefits of providing more information about UK gas production. To promote a more informed debate, UKOOA has commissioned OXERA to conduct an independent review of the subject.  A copy of OXERAs report, The costs and benefits of providing near real time gas information, may be viewed on UKOOAs website at http://www.oilandgas.org.uk/issues/gas/oxera.htm.  A table outlining the short term information available to gas market participants, taken from the OXERA report, is attached with this press notice.

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