British shorthaul gas tariff set to end in October

LONDON (ICIS)–Point-to-point tariff discounts, known as shorthaul, will in all likelihood be absent from the new British natural gas charging regime when it comes into force on 1 October 2020.

Industry insiders speaking to ICIS were in agreement that Ofgem would not be able to meet the deadline for an implementation this year, after the energy regulator on Thursday said it would launch an impact assessment into a number of shorthaul proposals.

A number of sources said the work is likely to take several months, with one estimating publication coming as late May 2021. This would fall considerably short of the 1 September 2020 deadline for new tariff changes to be agreed for October implementation.

An October 2021 implementation is more likely, although the presence of shorthaul in any form remains uncertain.

The removal of shorthaul will significantly shift costs of delivering to mainland Europe. Shorthaul users with sunk Interconnector capacity in August will be able to economically export even if the British NBP hub is up to 1.65p/th (€0.62/MWh) above Belgium’s Zeebrugge. From October Zeebrugge will need to be around 1.14p/th (€0.43/MWh) higher to encourage flows from Britain.

The Zeebrugge-NBP Summer ’21 basis traded at 0.7p/th on Friday morning, ICIS trade data showed. This suggests the market has not taken into account the incoming change in tariffs with Britain typically exporting to mainland Europe through large periods of the summer.

BYPASS RISK

The absence of any shorthaul in the new British tariff regime could lead to some users building private pipelines, sources said.

ICIS previously highlighted bypass risk at a number of sites , principally Teeside and Bacton.

Mothballed pipelines to industrial sites Teeside could be regasified at relatively little cost and in a short timeframe. Export routes to mainland Europe at Bacton sit around 100m away from entry terminals for offshore fields. Both locations are heavy shorthaul users and even one year of delay could be sufficient to invest in bypass.

Since NTS operator National Grid would not be able to collect tariffs on the private pipelines, revenue lost from those leaving the system would need to be recouped by remaining users.

However, one stakeholder noted that tariff savings that said users were making from shorthaul were already being passed onto the rest of the industry. And if those savings exceeded the revenue lost from leaving the NTS then perhaps bypass was the best option.

“It would be wasteful to give discounts to those who aren’t at risk of [leaving the system],” he said.

FRAUGHT DEBATE

Under the current tariff regime shippers are able to use shorthaul volumes under the Optional Commodity Charge. The principle of the discount is to discourage large users with exit sites near entry terminals bypassing the grid entirely, offering savings to discourage building private pipelines.

However, the calculations that underpin the tariff have not been updated for decades and shorthauling has ballooned beyond its original intention. Shippers are able to shorthaul large distances, with savings passed onto the rest of the industry.

This has led to a cross-subsidy of £146m in the 2017/18 gas year starting 1 October.

As a result, industry discussion around the place of shorthaul has been informed by entrenched commercial interests and prevented consensus.