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1999 Annual Report

Gas Issues

Natural gas is increasingly the environmental and commercial fuel of choice for domestic, commerical, industrial and power generation needs throughout the world. In energy terms natural gas currently represents some 40% of the (UKCS) hydrocarbon production. It provides 2.5 times as much energy as does indigenous coal production and, since 1996, has overtaken oil as the major source of primary energy in the UK. The UKCS gas industry also accounts for some 40% of total offshore UKCS capital expenditure, including associated gas fields. Additionally, in excess of 100,000 jobs in the UK are supported directly or indirectly by offshore gas capital and operating expenditure. Horton Spheres at Avonmouth Gas Terminal, which takes prodcut from Wytch Farm Oilfield.  Image courtesy of BP Amoco.

For many customers today gas is the fuel of first choice for cooking, heating, processing, and for the production of electricity. Gas is by far the cleanest of all the hydrocarbons and, following the principals of reducing emissions, is the fuel of first choice for power generation. Therefore, as the importance of gas increases in the UK and world markets, UKOOA becomes increasingly involved with the regulatory aspects of this industry.

Currently a specialised gas group debates issues and lobbies, on behalf of the industry, with various government departments and agencies such as HSE, DTI, DETR and Ofgem, in addition to the pipeline operator BG Transco.

During 1999 UKOOA’s Gas Issues Work Group has been actively involved in a number of issues including the following;

    * The introduction of the UK Competition Act 1998
    * The new Gas Trading Arrangements
    * The UK implementation of the European Union Gas Directive
    * The Government’s stricter consents policy on gas fired power generation.

The Competition Act

UKOOA has worked with both the DTI and the OFT on clarifying the impact of the Competition Act on the UK upstream industry to ensure that the effects on transportation and processing agreements produce a structure which is cost effective and benefits the UK producer and consumer. This has involved a process of raising awareness and consultation with both the DTI and OFT to ensure that both government departments fully appreciate the current physical and commercial arrangements offshore and the potential impact of the Competition Act.

The New Gas Trading Arrangements

Throughout 1999, UKOOA has participated in industry consultation on fundamental changes to the Network Code. This process has led to the implementation from October 1999 of the New Gas Trading Arrangements, with new entry capacity booking and gas balancing arrangements. Further changes are expected in April and October 2000. UKOOA has also worked closely with Ofgem on a review of Long Term Investment Signals, which ensure that Transco is advised when National Transportation System reinforcement is required. A consultation document is due to be published by Ofgem in the first quarter of 2000.

The European Gas Directive (EUGD)

The EUGD is a major piece of legislation produced by the EU. It has been in force since December 1998 and has to be implemented by member states in August 2000. UKOOA has been working closely with the DTI and the EU in the determination of what changes are necessary in order for the upstream industry to conform to the infrastructure access requirements of the new regulation.

The Government’s Restrictive Consents Policy

The Government’s policy of restricting the use of gas for power generation has continued throughout 1999. UKOOA has consistently argued against this policy, and continues to highlight its concerns on the impact of the policy on both offshore and onshore jobs, investment and general industry confidence in what continues to be a difficult period for the Oil and Gas Industry generally. UKOOA has raised this issue with government ministers, senior civil servants and the press and continues to lobby in these areas for the early lifting of this artificial market constraint. Assurances have now been given that this policy will be reviewed and hopefully removed with completion of the review of the Electricity Pool in 2000.

Looking forward

1999 was a busy year for the UKOOA Gas Issues Work Group and the beginning of the 21st century has seen no reduction in the speed and breadth of change. Consequently UKOOA will continue to play an important role in advising the gas industry and regulatory authorities of the impact of issues such as the EUGD, the latest set of gas trading reforms, HSE reforms, the Climate Change Levy and the passage through Parliament of the Utilities Bill legislation.

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