Cut in DONG’s offshore natural gas tariff could spur more Danish supplies

29 January 2014 16:48 Source:ICIS

A decision by the Danish energy regulator on Wednesday to reduce transport tariffs could encourage more producers to take their natural gas to the wholesale traded market in the country, sources think.

The Danish Energy Regulatory Authority (DERA) lowered the cost of transporting natural gas from the North Sea to the natural gas processing plant in Nybro on the west coast of Jutland. The new fee, which comes into immediate effect, means that DONG Energy’s transport arm DONG Naturgas cannot charge more than Danish krone (DKr) 0.0575 (€0.008) per cubic metre (cbm) for a month-ahead gas capacity transport contract. DONG Naturgas had previously been able to charge a maximum fee of DKr0.07/cbm.

The tariff covers both capacity and volume costs, and the decision encompasses contracts entered into with Maersk Oil’s trading arm - Maersk Energy Marketing (MEMAS) in the period of July 2011 to October 2012. The new fee is the latest outcome of series of challenges from various parties regarding the transport tariffs (see box).

Boosted supplies

The transport capacity tariff reduction is expected to encourage other companies to flow more gas through the pipeline to Denmark because of the cheaper cost to do so, and could stimulate more producers to take their volumes to market in the same way that Maersk Oil and Shell’s trading arms do in Denmark.

One source close to the market said the news created a definite incentive to bring in more gas to Denmark. “Spreads in the past year towards NCG/TTF have been quite high and I see the only barrier in the past has been the high transmission cost. A problem might be that DONG seems to be quite long this year on gas within Denmark... and that might scare away [companies from placing] volumes in the GTF in the short term.”

DONG Energy’s upstream pipeline system consists of transport lines from Syd Arne/Harald fields to Nybro and the pipeline from the Tyra field (East) to the natural gas processing plant in Nybro. In 2012, around 4.5 billion cubic metres of gas (bcm) was transported from these fields to the processing plant.

A DONG Energy spokesman said that the new ruling would not affect the company’s ability to remain competitive.

“In 2011, we wrote our assets down and the lower tariffs, and has been taken into account in the 2013 and year result. Also you have to take into account that a large part of the transported gas is our own.”

DERA confirmed that the decision could be challenged at the Danish Energy Board of Appeal. But DONG said it had not decided yet whether or not to appeal. “First, we will seek further dialogue with DERA,” a spokesman said.

DONG Energy has said, that following the regulator’s decision, it planned to unbundle its offshore grid. DONG Naturgas will be unbundled and its upstream transportation activities transferred to the new entity DONG Offshore Gas Systems (DOGS).

In DERA’s 2012 calculation of MEMAS’s transport fees, it had estimated that potential savings to the company could be between DKr150m-250m (€20m-33m) a year. However, no up-to-date calculation had been made following the latest announcement, DERA told ICIS and MEMAS declined to comment on that issue. Kirsty Ayakwah

By kirsty ayakwah