Ofgem focuses on Sean in ongoing UK price investigation
British energy regulator Ofgem is seeking additional information from Centrica, Shell, ExxonMobil and BP regarding the flow of gas from the Sean field as part of a “detailed assessment” of whether gas was prevented from flowing into the UK and therefore artificially boosting prices.
In addition, the regulator stated that is has launched a co-ordinated investigation with several national competition authorities on the Continent into gas price levels, and that it will be meeting the European Commission “shortly” to discuss the same issues.
In October Ofgem disappointed many in the market by concluding that it found no evidence of market abuse (see EGM 11.10.1), though it did state that the existence of legacy contracts on production from the Sean, Indefatigable and Leman fields may have led to there being gas that was physically available from these fields, but which did not flow during the period under investigation. However, with the Indefatigable and Leman fields no longer under investigation — and with them Amerada Hess and Perenco, who were both named in the Ofgem investigation — the regulator’s focus has now centered on Sean.
The Sean field itself has very high deliverability rates and is used as a peak-shaving facility. The buyer from the Sean field (and also Leman and Indefatigable) is Centrica, with Shell, ExxonMobil and BP the producers.
EGM believes that decisions on whether to nominate production under the Sean contract are based on price: with an inbuilt capacity charge, Sean’s price has usually been well above the prompt market level.
In a statement, Ofgem said that it was seeking information from the companies involved as to whether gas from the Sean North and Sean South fields did not flow in the periods in question, even though such gas may have been available.
In order to progress the investigation, the regulator has asked the companies involved to provide additional information on flows from Sean — adding that all of the companies involved have agreed to co-operate fully with the request. The regulator added that it estimates production from the Sean field to be equivalent to around 5% of National Grid Transco’s (NGT’s) forecast supplies from the UK Continental Shelf (UKCS).
However, this figure was disputed by the chief executive of the United Kingdom Offshore Operators Association (UKOOA), Malcolm Webb, who stated last month that the production from Sean, Leman and Indefatigable was equivalent to around 1% of the total UK gas supply during October and November last year. Speaking on the publication of Ofgem’s initial findings, Webb questioned the impact of such a relatively small amount of gas on the market as a whole.
Elaborating on this latest request for information, an Ofgem spokesman said that the initial deadline for the submission of data from the companies was 10th December — although he noted, “We realise that we are asking for a lot of information... some of which is quite complex.” As such, he added that the regulator had a series of “priority requests” for certain pieces of information that it required by the aforementioned deadline, and that he expected the rest of the information to follow at a later date. He stressed that there was, as yet, no timeframe for the publication of the final conclusions of the investigation.
A coordinated approach to the investigation
He added that a meeting with the European Commission to discuss issues arising from the gas price investigation was scheduled for next month, and that Ofgem had written letters to the national competition authorities in Belgium, France, Germany and the Netherlands in order to devise a co-ordinated approach to the investigation.
A spokeswoman for UKOOA reiterated the view that Sean’s status as a peak shaving field means that it is intended to operate to provide “short, sharp bursts of production...for limited duration...typically in cold weather.” She added, “It is good to see that the inquiry is drawing to a conclusion with the full and
continued support of the companies involved.”
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