Market development in the United Kingdom's natural gas industry

Andrej Juris

No 1890, Policy Research Working Paper Series from The World Bank

Abstract: The author shows how, in the United Kingdom, government and industry participants have responded to challenges created by opening the natural gas industry to competition. He concludes that, as a result of cooperation between the government and industry participants, appropriate mechanisms can be established for operating and balancing system and for trading natural gas and transportation capacity. The deintegrated natural gas industry in the United Kingdom is off to a promising start after a long gestation. The author describes the processes of the Network Code, a market-based method for balancing the pipeline system and optimizing transportation by British Gas TransGo (BGT), the transportation and storage arm of British Gas (formerly the publicly owned monopoly transporter and supplier of natural gas). The Network Code is a set of rules that determine how users of the pipeline system cooperate with the system operator when seeking transportation services. The operator uses price signals generated through the flexibility mechanism to choose the balancing measures with the lowest cost to society. The author analyzes the four mechanisms used in physical gas markets, describes developments in the U.K.'s financial gas market, and describes pipeline capacity trading in primary and secondary markets and BGT's pricing of capacity and transportation services. The most important issue today, says the author, is whether industry participants can reach a consensus on how to enhance the existing framework to make markets more efficient. Development of the underdeveloped financial gas market will require cooperation between BGT and the Office of Gas Supply to give the International Petroleum Exchange access to BGT's electronic network, so that it can record and settle transactions. Both BGT and its customers will need to contribute time and resources to developing an efficient tariff structure for pipeline capacity and transportation services in the contract and tariff markets.

Keywords: Oil&Gas; Markets and Market Access; Information Technology; Water and Industry; Environmental Economics&Policies; Water and Industry; Oil Refining&Gas Industry; Carbon Policy and Trading; Energy Trade; Oil&Gas (search for similar items in EconPapers)
Date: 1998-03-31
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