Qatar/ExxonMobil LNG terminal in UK gets TPA exemption
Ofgem, the British energy regulator, has granted ExxonMobil and Qatar Petroleum exemption from regulated third party access to its planned LNG terminal, South Hook, at Milford Haven. The regulator is also reviewing an application for exemption by Dragon for its planned LNG terminal also at Milford Haven.
The exemption for ExxonMobil and Qatar Petroleum covers the entire proposed capacity of the site. The European
A grey area in the exemption remains the anti - hoarding measure s f o r capacity that have to be put in place by the project owners
Commission now has two months in which it can veto the regulator’s decision or ask for an amendment. Although TPA is required by the second energy directive, relevant national authorities can grant exemptions if certain criteria are met.
The exemption comes as no surprise: Qatar Petroleum and ExxonMobil were among the three project developers who had already submitted draft exemption requests to Ofgem at the end of 2003 and been told that the requests were likely to be met. The developer of the Balgzand Bacton pipeline project (BBL) and the other Milford Haven Terminal (Dragon LNG) also submitted draft exemption requests at this time.
One minor change in Ofgem’s position in its final views document is that it no longer expects the owners of South Hook to publish tariffs for either third party or its own use. Only Ofgem will have access to the information and it need not be made public.
Phase 1 of the terminal is expected to be operational during 2007. Construction work on Phase 2 is expected to begin in mid- 2006 and to be operational during 2009. Together the facilities are expected to process around 15 million tonnes of LNG per year.
Ofgem sees competition threat from ExxonMobil
One of the concerns raised by respondents to Ofgem’s consultation on the exemption was that Exxon Mobil would have 100% of the supply capacity and 100% of the physical supply contracts at the terminal, potentially raising competition issues.
Ofgem agreed that while the project would increase ExxonMobil’s share of the wholesale market, it would not be “to a level that would be likely to be detrimental to competition.” In presenting its views, Ofgem did not discuss ExxonMobil’s upstream role, but chose instead to emphasise that the presence of Qatar Petroleum would “enhance” competition both upstream and on the wholesale market.
Question of new participant in Qatar Gas II raised
One of the respondents to the consultation asked Ofgem whether the interest of a third party in the Qatar Gas II project would affect competition issues going forward. The respondent pointed out that this information was not available at the time of the draft exemption review. The third interested party is believed to be French energy major Total.
Ofgem would not comment directly as it said the changes to participation have not yet been finalised. However, it said that this could result in a review of the exemption “in particular on the grounds that there is a merger or acquisition activity in relation to, or by the facility owner.
Anti-hoarding measures still not set
Another grey area in the exemption remains the antihoarding measures for capacity that have to be put in place by the project owners. These have not yet been approved by Ofgem. One respondent was concerned over the lack of information on anti-hoarding measures and suggested the need for a long-term secondary market for unused capacity. They commented that the lack of a liquid spot market for LNG would make this a reasonable suggestion.
While Ofgem did not respond directly to this suggestion, it did say that if the planned arrangements did not work then this could constitute grounds for reviewing the exemption.
Dragon LNG exemption pending
Meanwhile, Ofgem has stated its preliminary view is that the Dragon site will meet the relevant criteria for exemption - which would be for 20 years - subject to veto by the European Commission. Dragon’s equity is jointly owned by BG Group (50%), the Dutch oil company Petroplus (20%), and the Malaysian oil and gas company Petronas (30%). In the first phase of the project, which is scheduled to finish by late 2007,
6 Gm3/yr of LNG capacity will be made available, with Dragon expected to increase the capacity of the facility to 12 Gm3 per annum by 2012 through one or two additional phases.
While Ofgem’s preliminary view is that the Dragon site will meet the relevant criteria, and that it will benefit market competition and security of supply, the regulator has noted that one of the main changes between the preliminary and formal requests for TPA exemption is that Petronas has agreed a 15- year LNG supply contract with Centrica for an average of 3 Gm3 a year starting between 1st October 2007 and 1st October 2008 (see EGM 11.08.1). However, Ofgem does not expect this contract would require it to reject the request for exemption.
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