Presentation on theme: "Energy Risk Management – 3 October 2006 Increasing interactions with global energy markets - the impact on the GB gas market Jo Witters Wholesale Markets,"— Presentation transcript:
Energy Risk Management – 3 October 2006 Increasing interactions with global energy markets - the impact on the GB gas market Jo Witters Wholesale Markets, Ofgem
Energy Risk Management – 3 October 2006 Overview GB gas market – meeting the ‘supply gap’ Moving from ‘energy island’ to ‘net importer’ New investment coming on stream… Market response - changing supply picture Importance of the demand side Outlook for Winter 2006/07… Will new capacity = more gas? Split winter scenario likely Information is key
Energy Risk Management – 3 October 2006 GB as an ‘energy island’ Up to 1998 Largely self sufficient Small volume imported from Norway 1998 - 2003 Self sufficient GB = net exporter via IUK
Energy Risk Management – 3 October 2006 Market in transition UCKS is a mature production area Production rates are in decline Imports necessary to meet forecast demand Net importer – winter and summer?
Energy Risk Management – 3 October 2006 Market response Investment facilitated by Liquid traded market Stable, light touch, regulatory environment TPA ‘exemption’ process - open for investors to apply Over £10bn of private sector money is being invested to meet Britain’s energy needs Market response to supply gap Investment in new infrastructure Pipelines / Storage / LNG import facilities
Energy Risk Management – 3 October 2006 Grain LNG IUK upgrade I Teesside GasPort LNG BBL & Langeled pipelines IUK upgrade II Dragon & South Hook LNG Langeled II (Ormen Lange) Grain II & South Hook II New investment … Planning process currently acting as barrier Canvey Island – local authorities rejected application 2005/06 2006/07 2007/08 2008/09
Energy Risk Management – 3 October 2006 Diverse supply sources … Sources of supply – 1990/91Sources of supply – 2007/08
Energy Risk Management – 3 October 2006 Part of a global market Competing with other markets – e.g. Asia / US GB market impacted by events elsewhere Cargoes can be diverted to higher priced markets Hurricanes Katrina/Rita
Energy Risk Management – 3 October 2006 LNG: GB experience to date Effective UIOLI arrangements are key Winter 2005/06 Occasions where flows did not respond to price Missed berths in Late Dec and Early Jan
Energy Risk Management – 3 October 2006 Effective UIOLI is key Effective UIOLI arrangements = LNG supplies optimised Significant potential for spot cargoes to GB market Allocation mechanism Open, transparent, non-discriminatory Mechanism to ensure capacity is not ‘hoarded’ Facilitates secondary trading Transparency of information is important
Energy Risk Management – 3 October 2006 UIOLI at Grain Winter 2005/06 Third party concerns re effectiveness of Grain UIOLI - Access to berthing slots - Information transparency Ofgem will continue to monitor effectiveness of arrangements May need to evolve over time in response to market conditions Formal review of exemption an option if problems persist Effective UIOLI – key exemption requirement Grain shippers worked to address concerns Enhanced arrangements now in place
Energy Risk Management – 3 October 2006 Outlook for Winter 2006/07: the markets view Wholesale prices falling……but still suggest gas will flow to GB
Energy Risk Management – 3 October 2006 Split winter seems likely Langeled on stream… But limited (if any) increase in flows from Norway IUK enhancement in place – 2 months early Rough at full capacity BBL on track – schedule remains tight GasPort on track (1 st flows early Jan) Like last winter storage cycling is likely to be important October December BBL enhancement due… But what will the storage position be? March Gas and electricity interactions also likely to be important
Energy Risk Management – 3 October 2006 Winter 2006/07: supply picture More capacity than last winter Potential for demand side response Experience of last winter…will the gas flow?
Energy Risk Management – 3 October 2006 Commercial options for customers – managing price risk Contract terms reflect opportunity cost to customer Customers can contract for different types of interruption Commercia l Interruptio n Fuel Switching GBA Based Contracts Turn Down A range of commercial options developed by industry
Energy Risk Management – 3 October 2006 Demand side response last winter Industrial customers reduced consumption by up to 16.6mcm/day Most customers switched fuels Provision of flexibility to gas system – effective form of gas storage
Energy Risk Management – 3 October 2006 Factors affecting gas supplies Impact on flows Price Volume Availability of gas /ships Information transparency Access to capacity Gas Quality Operational factors Market liberalisation Political instability Will new capacity equal new gas?
Energy Risk Management – 3 October 2006 Why the gas should flow: Positive developments in Europe More storage information now being released Gas quality – working with Fluxys to establish materiality New supplies from Egypt (to France & Spain) New train in Trinidad & Tobago New terminal at Fos Cavaou (France) New terminal + increased capacity at 2 existing terminals in Spain Upgrade of East-West transportation in Germany Working to remove constraints New Investment New LNG Increased transparency EU Commission continues to take steps forward in sectoral enquiry
Energy Risk Management – 3 October 2006 European storage: information available for winter Quantities of gas in store Examples of information available from GdF and Total Injection volumes Withdrawals
Energy Risk Management – 3 October 2006 Positive developments in GB: New information this winter New gas flow data – released to market today Users to develop understanding NG workshops held in September
Energy Risk Management – 3 October 2006 Positive developments in GB: new incentives on NG Ofgem developed new incentives on NG Working with customers and shippers Customer concerns re: quality of market information Website performance incentive Availability/timely delivery of key gas data Gas demand forecasting incentive System gas demand Day ahead forecast Incentives take effect today
Energy Risk Management – 3 October 2006 Summary Declining GB production means increasing reliance on imported gas Market has responded…significant levels of investment But…new capacity may not equal new gas Effective and transparent arrangements are key Outlook for Winter 2006/07… Market responding to reduced infrastructure risk ‘Split winter’ scenario still likely Commercial options for customers – manage price risks
Energy Risk Management – 3 October 2006 Promoting choice and value for all gas and electricity customers