1 Allocation of Baseline Reduction in the Substitution Methodology Draft Presentation aimed for 11 th June Substitution Workstream John Baldwin Gas Strategies.

1

Allocation of Baseline Reduction in the Substitution Methodology

Draft Presentation aimed for 11th June Substitution Workstream

John BaldwinGas Strategies ConsultingA Division of Gas Strategies Group Ltd35 New Bridge StreetLondon EC4V 6BW

Tel: +44 (0)20 7332 9950 Fax: +44 (0)20 7332 9941 E-mail: [email protected] http://www.gas-strategies.com

2© Gas Strategies Consulting

Purpose of this Presentation

To illustrate the actual impact of substitution on ASEPs with unsold capacity

To bring out issues associated with deciding which ASEPs will have their baseline reduced NGG’s 2007 methodology had ‘nearest’ ASEP as the rule, within

Zone first Aim is for NGG, Ofgem and Shippers to consider the

allocation question as part of process of developing the NGG Substitution Methodology


Re-cap

Baseline consultation almost completed with Ofgem proposing Option 1A Transfer-trade mod in place Process underway to inform National Grid’s Substitution Methodology One issue that has not been discussed relates to the allocation criteria for

deciding which ASEP should give up capacity to a new or expanded ASEP

This was not

Identified as one of

the key Issues in

the 2007 discussions

and the Feb 2008

NGG Summary Report

and Discussion

Document


Context (1) – Substitution Obligation


Context (2) – Other Obligations


Context (3) – UKCS Production

By 2011 UKCS production forecast to be around 50 BCM which is less than half the 108 BCM

in 2000 and so it can be expected that NTS capacity becomes available as this happens.


Context (4) – Troll Project Abandoned

2007 10YS – Troll project taken out – 20

MCMD reduction


Context (5) – Reduced Baselines

There have been material reductions in baselines at 3 ASEPs from the 2002-07 level to the proposed new baseline (Option 1A): Barrow (was 65.5 MCMD, reduced to 28.4 MCMD) Teesside (was 70 MCMD, reduced to 44 MCMD) Theddlethorpe (was 78 MCMD, reduced to 56 MCMD) Total reduction 85.1 MCMD

No other Baselines have been reduced


Context (6) – Capacity Increases

The decline in UKCS has created space for gas from other sources with increases in entry capacity at Easington, Aldbrough, Isle of Grain, Milford Haven: Total new capacity at these 4 ASEPs of 202.1 MCMD Investment in any necessary incremental capacity underwritten by

shippers


Allocation of Baseline Reduction

If capacity is required at an ASEP (new or existing) then NGG’s proposals in 2007 were for substitution to be from the nearest ASEP

We have looked at a number of potential ‘substitutions’ to understand the impact of this


Background 1 - The Entry Zones


Background 2 - Potential Increases in Entry Capacity

From this BERR slide, we can

select potential projects in each

zone to understand how substitution

could be implemented and its

possible impact on other ASEPs, both

in the same Entry Zone and out of

Zone


Background 3 – Potential projects mapped by Zone

Five projects

identified by way of

Illustration, we can

look at each in turn


Background 4 – Unsold capacity by zone

Based on

30th May

2008 capacity

sales update


Background 5 – Basic Project Data

Dates and MCMD for projects based on

Public domain data and so Indicative only


Clarification re “pipeline distance”

The 2007 Methodology says: The nearest ASEP will be determined according to pipeline

distance and is selected in preference to more distant ASEPs as this will create greatest interchangeability

What does pipeline distance mean?


Substitution – illustrative projects

The next slides look at 5 potential new projects and discuss the possible substitution scenarios

They have been selected to help provide a range of scenarios so that shippers can understand how the methodology could be applied and the choices that exist NGG requested to provide feedback


Whitehill (1)


Whitehill (2)

If Whitehill passes NPV test, it may be able to access small amount of unsold capacity at Hatfield Moor

Next, may be able to access unsold capacity in other Zones: From NGG’s 2007 methodology, consider nearest ‘non zonal’ ASEPs Nearest ASEP is Theddlethorpe (33 miles), Teesside 70 miles

(Google earth, not pipeline distances) What would the Exchange rates be between?

Whitehill and Theddlethorpe Whitehill and Bacton Whitehill and all the ASEPs in the Northern triangle?


Saltfleetby (1)


Saltfleetby (2) If Saltfleetby passes NPV test, likely to be large amount of

unsold capacity at Theddlethorpe (assuming in same zone) Around 48 MCMD unsold, with no potential new flows identified by

NGG to increase utilisation


Bletchingley (1)


Bletchingley (2) If Bletchingley passes NPV test likely to be unsold capacity

at Bacton No other donor ASEP in zone Similar distance to Theddlethorpe (but not in SE Zone)

Around 86 MCMD unsold, but with potential flows that can use this capacity So, should Bacton baseline be reduced or Theddlethorpe?


Baines (1)


Baines (2)

Assuming that Barrow has sold out (eg Gateway), then there is likely to be unsold capacity in the Northern Triangle: St Fergus – 82 MCMD Teesside – 26 MCMD Glenmavis – 8 MCMD

NGG 2007 methodology would take up to the 26 MCMD from Teesside as the nearest ‘within zone’ substitution


Baines (3)

Looking at 2007 10YS, by 2011

St Fergus could have flow as

High as 120 MCMD, Teesside

33MCMD, Glenmavis could be 9

MCMD


Baines (4) - Issues

What about Partington which is closer geographically and has potentially 16.5 MCMD unsold?

Why not take from other Northern Triangle ASEPs which utilise the same infrastructure as Teesside (South of Teesside)?

1 to 1 exchange rate in Northern Zone for Transfer-Trade Why not take into account SO costs associated with different

ASEPs? Longer distance = higher opex (compressor fuel) and greater buy back risk

Why not take into account ‘spare’ capacity over possible gas flows?

Why not pro rata of unsold capacity in a zone?


Portland (1)


Portland (2)

If Portland passes NPV test, may be able to access unsold capacity in South West UK Zone

Avonmouth potentially has 13.5 MCMD unsold After that, is it Bacton or Dynevor Arms

What exchange rate for Dynevor to Portland and bacton to Portland? After Avonmouth and Bacton/Dynevor, what next?

Partington? Does reduced flows down West Midlands allow higher flows into NTS in

South West?


Selection of donor ASEP – summary

This issue has not been debated yet, we need to understand the options and choices:

NGG’s 2007 methodology had ‘nearest’ ASEP as the rule, within Zone first

Nearest within zone appears arbitrary Abandonment of Troll project has major impact on NTS capacity

availability as St Fergus was forecast to be potentially fully utilised by 2011

Latest forecast has minimum of 30 MCMD spare Other Licence Obligations need to be considered such as

‘economic and efficient’ and ‘non discrimination’ which may mean that the ‘nearest’ methodology is not appropriate

We would like NGG, Ofgem and Shippers to consider this question

1 Allocation of Baseline Reduction in the Substitution Methodology Draft Presentation aimed for 11 th June Substitution Workstream John Baldwin Gas Strategies.

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