The U.K. last April opened part of its residential gas market to competition.
Reports said the network code, with its daily balancing requirement for third party supplies through the grid, worked smoothly (OGJ, May 6, p. 50).
Gas terminals at the beach, however, have had problems in verifying shipments. This has forced London's International Petroleum Exchange (IPE) to delay introduction of gas trading.
IPE is the validation agent for gas shipments passing through the U.K.'s Bacton, Theddlethorpe, and Teesside terminals. Coopers & Lybrand Ltd., London, validates throughput at Barrow, Easington, and St. Fergus.
As the U.K. gas market has opened, spot trading in gas contracts has blossomed among gas companies, with most trading involving gas arriving at Bacton from North Sea fields.
IPE has developed a contract specification for gas and has created a computer based trading system that will use Bacton contracts as a benchmark. It's similar to use of Brent crude among oil traders.
Validation issue
Richard Ward, IPE divisional director, said problems with validation of shipments at Bacton must be resolved before trading on the IPE system can officially get under way.
"We need to know points of delivery for validation of the contracts," Ward said, "but shippers are not providing these as they often don't know where gas is heading."
The trading systems are all in place, and gas traders can log onto the system a couple of hours each Wednesday morning to familiarize themselves with electronic trading.
Last November, IPE estimated the U.K. gas spot market represented about 6% of Britain's gas consumption, which then stood at almost 9 bcfd.
There are 25 companies that regularly trade gas, with about one fourth of their deals handled by five brokers. The market and number of traders are expected to grow.
One spur will be full imposition on Sept. 1 of the network code, which sets terms for shipping gas through the national grid. This is expected to force shippers into short term trading to fine tune daily supply/demand balances.
The exchange expects gas trading to build slowly, but Bacton prices will have a growing role in U.K. price and supply arrangements.
Bacton benchmark
When Britain's gas grid is connected to mainland Europe through the planned Interconnector gas trunk line due in operation in 1998, Bacton contracts are expected to see increasing use as a mark for European gas prices.
Ward said, "The system will operate through on-screen trading. Traders could be anywhere, although they would have to be recognized members of the exchange to log in.
"Initially we will put screens in only the London area, but my vision is that there eventually will be a network of trading screens throughout Europe."
In the meantime, Ward said, IPE wants to validate an entire 1 month cycle of trading at Bacton before the network goes "live."
"We have undergone one full cycle," Ward said, "and this was not a success as regards validation. April gas will be the next full cycle, and this will be validated in June. This means we will be able to launch trading in July at the earliest."
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