UK Gas Market Research Articles

Fossil energy risk exposure of the UK electricity system: The moderating role of electricity generation mix and energy source

The UK's energy policy aiming to reduce carbon emissions has effectively driven down the use of coal in its electricity generation mix. But unless the power system can transition to a predominantly renewable mode of generation, it may still be unable to significantly reduce its reliance on traditional fossil fuels. To observe the effects of energy policies in the UK, this paper measures risk exposure of the UK electricity system to fossil energy prices. We analyze the moderating role played by the electricity generation mix and energy sources in the relationship between the two. The study finds that although the UK power system has greatly reduced its dependence on coal in its power generation mix, the risk of coal price shocks in electricity prices remains significant. Self-sufficiency in the UK gas market is essential for electricity price risks. The results imply that in addition to carbon reduction, the UK must propose policies to increase incentives that will encourage power companies to pivot towards renewable energy generation. This will allow the electricity market to reduce fossil fuel dependence. In doing so such policies offer the potential to achieve the goals of Electricity Market Reform: an affordable and sustainable power system.

Modeling natural gas price volatility: The case of the UK gas market

We investigate if and how gas price volatility can be explained on the basis of market fundamentals. We depart from the Kanamura (2009) supply and demand based volatility model. We generalize this model to account for a variety of demand and supply relationships. We investigate daily natural gas prices in the UK in the 21st century. We find that different supply curves exist in particular sub periods and we establish the presence of various leverage effects. We conclude that supply and demand based volatility models relying on different supply assumptions provide a sound theoretical and economic foundation for using GARCH models in the UK gas market.

Future spot gas prices in the US and the UK: are movements more influenced by country factors or by global factors?

This paper highlights the importance of gas futures (country factors) and oil futures (global factors) for explaining the future spot gas price, with a comparative focus on the major Western gas markets of the United States and the United Kingdom. These markets are known to have achieved (to a relatively high degree) a decoupling of gas and oil prices over the past two decades. The markets are tested with lagged daily data over the period from late 2003 to late 2009. Insight into the scope for further deregulation of country gas markets is provided. The evidence shows that both markets have made strong progress in deregulation, but that international and domestic arbitrage opportunities remain between gas and oil, particularly in the UK gas market.

The UK Market for Natural Gas, Oil and Electricity: Are the Prices Decoupled?

After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated and the Continental gas price became dominant. However, in an interim period - after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) - the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period - which for natural gas markets displays an unusual combination of deregulation and autarky - as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Monthly price data in the period 1995-1998 indicates a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.

Henry Hub and national balancing point prices: what will be the international gas price reference?

One of the lessons in the history of international trade in commodities is the emergence — sooner or later — of an international price reference, most commonly known as an international marker price. In the area of oil, West Texas Intermediate (WTI) plays the role of a marker for sour crudes traded in the Atlantic basin. Brent oil fulfils this function for sweet crudes traded in Europe. Another important aspect in the area of global commodities is that the emergence of a marker price is not always necessarily related to the relative share of production or exports of the commodity, but primarily to the existence of an organized market for this commodity. Today, while international gas trade is intensifying, we still lack an international price reference for this commodity. This is due to the fact that the international trade of natural gas is still highly regionalized. It is also due to the fact that most gas markets are still regulated. Nevertheless, deregulation efforts have been implemented in both developed (the United States, the United Kingdom, continental Europe, Korea) and developing countries (Brazil, Chile) and have led to new market structures based on more competition in all segments of the gas chain, except transportation. In the meantime, price structures based on supply and demand principles are supposed to have emerged in the US and UK markets in the 1990s as a result of the implementation of deregulation measures. Today, the US gas market, which represents more than 660 billion cubic metres per year of consumption and the UK gas market, which is close to 100 bcm annually, are considered mature enough to make the principles of supply and demand operate inside these markets. In fact, the Henry Hub (HH) price, which is determined at a physical location in Louisiana, US, and the national balancing point (NBP) price, which is determined somewhere inside the national transmission system (NTS), without any precise location, are considered as potential candidates to serve as a marker price in the international trade of gas. The objective of this paper is to examine some fundamental properties of the HH and NBP prices and assess which of them has the biggest potential to become an international price reference. Our main conclusions are: 1According to the relatively huge volume of gas traded on the US spot market, compared with the UK, and according to the experience accumulated by the New York Mercantile Exchange (NYMEX) in gas trading, the HH price has a bigger potential than the NBP to become an international price reference, particularly because the UK market is supposed to import more and more gas indexed to oil in the coming years. 2However, on the price fluctuation side, the NBP spot price seems to fluctuate more normally than the HH price in the short term, which can give a certain advantage to NBP prices. 3We cannot exclude the fact that in the coming years we will have two or even more reference prices in the Atlantic Basin: the NBP, the HH and also reference prices at other regional hubs.

Regulatory reform of the UK gas market: The sase of the storage auction

AbstractThe UK gas industry has undergone major changes since it was privatised in 1986 as a fully integrated monopoly. The most significant of these has occurred not as a result of the privatisation legislation but by the intervention of the ordinary competition authorities in support of an active industry regulator. While price capping continues to be used as the primary instrument for welfare protection against the still substantial monopolistic powers of the incumbent, new competition (which has been positively encouraged) has had the greater impact on prices and choice. Recently, however, the regulator has encouraged the use of auctions for the sale of storage capacity. This paper considers the merits of auctions and makes a tentative evaluation of their effectiveness. Further use of auctions is recommended but reserve prices are considered inappropriate where monopoly power still remains.

Incumbent and entrant response to regulated competition: signaling with accounting costs and market prices☆

Relative prices charged by incumbents have become a strategic issue as competition is introduced into regulated markets which were previously served by a monopoly supplier. We report on the behavior of the incumbent and entrants in the residential UK gas market, where the regulator has made several investigations into whether the incumbent’s relative prices constitute undue discrimination. We identify the regulator’s policy, the strategic use of cost allocation by both the regulator and the incumbent, and the costs implied by entrants’ prices. We deduce that the entrants’ behavior provides support for the incumbent’s cost allocation arguments rather than those of the regulator.

The UK Natural Gas Market – Established Suppliers will Control just 40% of the UK's Gas Market in 2010

The UK Natural Gas Market – Established Suppliers will Control just 40% of the UK's Gas Market in 2010

UK Gas Market Newcomers Warned of Late Payment Losses Ventura Customer Service Management

UK Gas Market Newcomers Warned of Late Payment Losses Ventura Customer Service Management

Recent and Prospective Developments in Natural Gas Markets in the UK and Continental Europe

This paper examines the UK gas market over the next few years with the aid of financial simulation modelling techniques. There is likely to be an excess of potential UK productive capacity over UK demand into the next century. The market situation depends significantly on UK producers being able profitably to export to the European continent. New gas field exploitation in the Southern North Sea could continue at prices as low as 12 pence per therm. In the Central Sector where costs are much higher, field economics is complicated by the presence of oil of condensate with the gas.

After Sleipner A policy for UK gas supplies

The decision by the UK government to reject the import of Norwegian gas from the Sleipner field, has determined the sources of UK gas supplies up to the early 1990s. Incredibly, the single most important British energy policy decision of the mid-1980s (and perhaps of the entire decade), failed to arouse any significant public interest. Moreover, the excitement which followed the announcement of the intention to privatize the British Gas Corporation (BGC) within the lifetime of the present government, obscured the much more important issue of future UK gas supplies. In spite of its avowed disdain for energy policy making, the government has arrived at a policy for UK gas supplies. This article looks at the reasons behind the Sleipner decision and its consequences for the UK gas market in the 1990s.