Gas storage: GB experience and future trends

Sonia Brown Director, European Strategy and Environment GSE Conference - May 2007

Overview

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Evolving gas supply picture in GB

Movement from ‘energy island’ to ‘net importer’ Storage becoming increasingly important supply source

Market recognising opportunities in new storage

 Significant investment taking place in new facilities  Government working to address barriers in planning process

Important to have effective third party access arrangements

 RTPA exemptions can be appropriate – but effective UIOLI is key   Greater access to info on operation of storage facilities is needed GSE work in facilitating greater transparency = good step forward 2

GB as an ‘energy island’ …

140 120 100 80 60 40 20 0 1986 1988 1990 1992 1994 1996 UK natural gas 1998 Demand 2000 2002 2004

Up to 1998

 Largely self sufficient  Small volume imported from Norway

1998 - 2003

 Self sufficient  GB = net exporter via IUK 3

Market in transition

140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 UK natural gas 2010 2011 Demand 2012 2013 2014 UKCS = a mature production area  Production rates in decline Imports necessary to meet forecast demand

GB as net importer – winter and summer?

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Market response

Market response to supply gap

  Investment in new infrastructure Storage / Pipelines / LNG import facilities

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 GB’s energy needs

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Planned investment in storage

 Up to 6.5bcm of new storage capacity currently in planning/development phase

If all developed… would double existing capacity by 2010

 New facilities are typically more flexible, with higher deliverability 6

Changes proposed to planning regime

Planning process has acted as a barrier to new infrastructure projects in GB

 Ministerial “statement of need” issued last year: Sought to strike a better balance in local level concerns and national need for new storage infrastructure to provide secure energy supplies

UK Government has this week published proposals to amend existing planning arrangements

 Ofgem welcomes proposals for change – should assist development in new storage infrastructure 7

Access to storage and LNG terminals

Art 22 of EU Directive 2003/55/EC

 Requires LNG terminal and storage operators to provide TPA  Developers of “major new gas infrastructures” can apply for exemption from Regulated TPA - where certain criteria are met  National regulators assess applications - competition assessment key  Commission has ability to veto decisions taken at national level

“Light touch” regulatory approach adopted in GB

 Competitive gas market – storage not a licensed activity  Ofgem undertakes monitoring role – ensure arrangements remain effective 

Customer protection important

Anti-hoarding measures necessary – effective UIOLI is key 8

“Use It Or Lose It”

Effective UIOLI arrangements = gas supplies optimised

Mechanism to ensure capacity is not ‘hoarded’

 Facilitates secondary trading…  …and new entry to market 

Allocation mechanism

Open, transparent, non-discriminatory

Need open access to quality information for arrangements to work effectively

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GB storage – exemptions process

Ofgem considers applications for exemption from RTPA requirements on a case-by-case basis

 To date a number of RTPA exemptions have been granted to short and medium range storage as well as LNG importation facilities   Some exemptions granted on basis that facilities are ‘de minimis’  All exemptions issued require effective UIOLI to be in place UIOLI arrangements may need to change in light of market conditions evolving – onus on exemption holders to keep under review  Rough facility is subject to separate undertakings regarding access  Hornsea facility is subject to negotiated third party access 10

Aldbrough exemption application

9 cavern storage facility - off West Yorkshire coast Capacity = 420mcm - Deliverability = 40mcm/d  Ownership split between SSE and Statoil: operated as 2 separate facilities  Ofgem consulted widely on how to treat this type of arrangement –

could there be two separate exemptions for the facilities?

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Ofgem “minded to” grant exemptions to SSE and Statoil

 Detailed assessment undertaken of effect on competition Shares in market for medium to long range storage = relatively small   Facilities subject to negotiated TPA excluded from analysis Effective UIOLI arrangements will need to be in place for both facilities 11

Transparency in Europe – storage information

ERGEG Guidelines for Good TPA Practice for Storage System Operators

 Voluntary provisions relating to transparency

ERGEG monitoring report in Dec 2006 – results show scope for further improvement…

Capacity data Storage utilisation Only 13 out of 40 compliant Only 1 out of 40 compliant 12

European storage: information available

 Improvements made to the stock and flow information available at French storage facilities  Release of aggregate storage information facilitated by GSE Work underway as part of Gas Regional initiative 

Transparency identified as key priority

Transparency workstream established to look at  information on transmission and storage Stakeholders currently developing proposals relating to the provision of aggregated injection/withdrawal storage data as well details of storage capacity 13

Summary

Storage already makes a significant contribution to meeting GB demand for gas – potential for this to become even greater:  Decline of UKCS – growing need for diverse supplies  Considerable planned investment in new facilities  Positive changes to planning process underway  Scope for continued improvements to transparency of information through the Gas Regional initiative and work of GSE  Wider compliance with GGPSSO is needed

Ofgem welcomes the continued work of GSE on these issues

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