Reform of NTS Gas Offtake Arrangements
7 December 2006
By Graham Shuttleworth
In this report for the Gas Forum, which comprises virtually every significant shipper and supplier of gas in the UK, a NERA team led by Diretor Graham Shuttleworth describes and evaluates a proposed modification to capacity booking arrangements on the gas grid in Britain. Modification 116 to the Uniform Network Code would change the way in which gas shippers book "exit capacity" on the National Transmission System. Instead of booking annual peak day capacity, shippers would have to book "flat capacity" (average peak day usage) and "flexibility capacity" (diurnal storage) up to seven years in advance.
This report reviews the proposal (and several near-alternatives) from the point of view of pipeline economics and compiles the results of an industry survey on the costs and benefits of implemention. The authors conclude that deficiencies in the "entry-exit" system of gas transportation tariffs will prevent the proposal from creating incentives for more efficient investment. Compared with forecasts in a Regulatory Impact Assessment by the energy regulator (Ofgem), future efficiency gains will be smaller and costs of implementation will be larger. Overall, the authors argue, the proposal has negative net benefits.
