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CAM codes could hamper flexibility at UK's Bacton entry point – shippers

03 Jan 2014 16:22:38 | esgm

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An option being considered by British energy regulator Ofgem over capacity allocation at the UK’s entry point of Bacton could lead to a reduction in flexibility, shippers have warned.

The option, which would stop shippers from being able to mutually substitute interconnector and UK Continental Shelf (UKCS) capacity, is being mulled under the EU’s Capacity Allocations Mechanisms (CAM), which are set to be implemented by 1 November 2015.

Capacity that is mutually substitutable, such as UKCS and interconnector capacity is at present, is known as fungible capacity, and it is a key feature tied into many existing contracts at Bacton, providing flexibility to shippers.

Ofgem has proposed that capacity offerings at Bacton be split under the EU code requirements, wherein one interconnection point would be created for the two interconnector pipelines, and another for gas from the UKCS.

While this is considered to be a necessary move in order for the NBP to be CAM complaint, removing fungibility from contracts is not, although at this stage Ofgem is in favour of the option.

“If Bacton entry capacity is split between UKCS Aggregated System Entry Point (ASEP) and European Interconnector Point ASEP we do not consider that capacity should be fungible between the two ASEPs,” Ofgem wrote in an open letter to the industry at the end of October.

“That is, entry capacity held for one ASEP should not be freely usable at the other ASEP.”

In response letters to Ofgem, industry participants were generally concurrent that there is a need to split capacity at Bacton, but many were very critical of the option to remove fungibility from contracts.

“Gazprom Marketing and Trading (GM&T) is strongly opposed to capacity not being fungible between UKCS and EU entry. CAM requires that the maximum possible amount of capacity is made available to competing shippers,” the company wrote in a letter to Ofgem.

“Forcing non-fungibility puts this requirement at risk through creating artificial restraints and stranded assets.”

GM&T, a subsidiary of Russian producer Gazprom, owns capacity on the BBL interconnector.

Along with Gazprom, British utility Centrica hit out at Ofgem’s proposal to remove fungibility at Bacton, but the company went one step further than GM&T by suggesting that it would rather capacity at Bacton was not split at all.

“Ideally, we would like the Bacton ASEP to remain as one entry point. We would prefer a virtual model, allowing National Grid to comply with its bundling obligations, whilst continuing to offer Bacton’s current physical flow flexibility to market participants,” the company said.

Centrica owns capacity on the IUK and BBL interconnectors, and also receives gas from the UKCS at Bacton.

At the time of press, Ofgem was unavailable for comment as to what the next steps in the implementation of CAM at Bacton would be. Jack Elliott

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