Thursday, July 5, 2007
Regulator on the Ropes over U.K. Gas Entry, Exit Rules as Excelerate Lobbies for LNG
July 5, 2007
Sally Bogle
Global Insight Daily Analysis
U.S. LNG terminal developer Excelerate Energy is seeking permission to take U.K. energy regulator Ofgem to court over gas-entry rights, according to Platts. It follows the regulator's decision last December to cut the baseline entry capacity for Excelerate's Teesside terminal from 70 MMcm/d to 33 MMcm/d. Earlier this year, Excelerate said that had it known that Ofgem would cut back Teesside entry rights, it may not have invested in its LNG facility at Teesside, which came onstream last February. Excelerate's application for a judicial review comes as Ofgem is awaiting a decision from the U.K. Competition Commission on E.ON U.K.'s appeal against the regulator's decision on exit rights. A decision is expected by 10 July 2007.
Ofgem wants to restructure exit capacity rights by putting a price on flexibility, so that it costs more to flow gas out of the system at an uneven rate.Significance: The two disputes with Ofgem illustrate a clash between the regulator and operators with the former wanting to move to a longer-term model, but the latter lobbying for shorter-term, more flexible entry and exit rights. In Excelerate's case, the group's business model is to land LNG cargoes when prices are highest, meaning it is reluctant to commit to long-term entry rights. Meanwhile, E.ON and other power generators want flexible exit rights giving them the option to flow gas to their power plants during peak electricity-generation hours. With more LNG and piped import facilities expected online in the coming few years, further clashes are likely between the regulator and operators wanting to take advantage of price differentials in the continental European and Atlantic Basin markets (see United Kingdom: 2 May 2007: ).
