An introductory guide to the

GB energy
industry
2018

03
GAS MARKET
CHAPTER

STRUCTURE AND
STATISTICS

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Contents
03 Gas market structure and statistics 24
3.1 Key industry areas 24
3.2 Production 24/25
3.3 UK gas demand 26
3.4 Access to gas 27
3.5 Overview of key market roles 27
3.5.1 Shipper / supplier 27
3.5.2 System operator 28
3.5.3 Joint office 28
3.5.4 Xoserve 29

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Disclaimer: While Cornwall Insight considers the information and opinions given in this report and all other documentation are sound, all parties must rely upon their own
skill and judgement when making use of it. Cornwall Insight will not assume any liability to anyone for any loss or damage arising out of the provision of this report
howsoever caused. The report makes use of information gathered from a variety of sources in the public domain and from confidential research that has not been subject
to independent verification. No representation or warranty is given by Cornwall Insight as to the accuracy or completeness of the information contained in this report.
Cornwall Insight makes no warranties, whether express, implied, or statutory regarding or relating to the contents of this report and specifically disclaims all implied
warranties, including, but not limited to, the implied warranties of merchantable quality and fitness for a particular purpose. Numbers may not add up due to rounding.
24

Gas market structure

and statistics

03
3.1 Key industry areas
Gas production is governed by the Oil and Gas Authority (OGA).
It involves the extraction of gas from field and processing to
move to market.

Networks (also referred to as transporters) are responsible for

the transportation of gas from beach terminals through the
gas pipe network to gas consumers. Companies undertaking
this activity require a transporter licence.

Shippers are responsible for booking the use of networks to

ship gas around the country. The transportation of gas along
Great Britain’s pipeline infrastructure, to the point of
consumption, requires a shipper licence.

Suppliers purchase gas from the shipper and bill customers

and must hold a supplier licence.

3.2 Production
The production of gas involves its extraction from wells,
primarily offshore in the North and Irish Seas. Natural gas was
first discovered in the UK Continental Shelf in 1965 and since
then substantial reserves have been located.

Up until the mid-2000s GB was self-sufficient in gas and with

abundant resources usage for heating and cooking, and
subsequently for power generation, expanded significantly.
As a result, GB now has one of the highest domestic gas
penetration levels in the world at over 80%. As a comparator,
France’s level is 35% and Ireland’s 20%. Gas penetration is also
evident in the electricity markets with over 40% of electricity
generation coming from gas-fired power stations.
 25

However, in recent years self-sufficiency has dwindled and GB

has been a net importer of gas. Since 2005 the majority of
imports come from Norway and gas interconnectors with
Belgium and the Netherlandsprovide two-way flows which vary
with market prices. More recently, supplies of Liquified Natural
Gas (LNG) have been increasing. LNG allows a more efficient
transport of gas, as a condensed liquid, to physically
unconnected markets and as a result GB now imports LNG from
the USA, Qatar, Russia and Australia. Increased import
dependency has led to a more volatile gas price, which is more
influenced by global factors. These developments have led to an
increased focus by policy-makers on the security of gas supplies.

FIGURE 5: CHANGES OVER TIME IN GAS PRODUCTION AND DEMAND

120

100

80

BCM / 60
YEAR

40

20

0
0
01

02

03

4
05

6
07

9
10

11

12

13

14

15
16
0

0
0
0

20
0

20

20

20
20
20
20

20
20
20

20

20

20

20
20
20
20

UKCS SHALE BIO METHANE

NORWAY CONTINENTAL LNG

GENERIC IMPORTS

Source: National Grid Gas

26

3.3 UK gas demand

Like electricity, gas supply can roughly be split into three board
categories. A third of supply is to households, a third to
businesses (both industrial and small scale) and a third to power
generation. Overall, gas supplies more than twice as much
energy as electricity today, with this differential increasing even
more during peak demand on cold winter days. This is reflected
in the Typical Domestic Consumption Values (TDCVs) for gas
which for households is currently 12,000kWh (for a medium user)
– four times the level of electricity. Gas usage at the
wholesale level is measured and settled on a daily basis,
compared to half-hourly for electricity. However, like in electricity,
most households do not yet have the metering in place to
measure this and bills are usually settled quarterly.

Gas demand tends to be more volatile than electricity due to

temperature correlation and demand for power generation.
Recent trends are shown below in figure 5.

FIGURE 6: GAS DEMAND OVER TIME BY SECTOR

(QUARTERLY ROLLING AVERAGE)

TRANSFORMATION OTHER

DOMESTIC IMPORT SHARE %

300,000 100%

90%
250,000
80%

70%
200,000
GWh 60%

150,000 50%

40%
100,000
30%

20%
50,000
10%

0 0%
13

15

16

17
07

9
8

10

11

12

14
0
0

n-
n-

n-
n-

n-
n-

n-
n-

n-
n-
n-

Ja
Ja

Ja
Ja

Ja
Ja

Ja
Ja

Ja
Ja
Ja

Source: Cornwall Insight from BEIS data

 27

3.4 Access to Gas

Despite relatively high access to gas for business and households,
there are still 4 million of the 27million households in GB without
gas supply. Economic and social issues arise from this:

— Those without access will be heating premises with

something more expensive (electricity) and/or more
carbon intensive (oil)
— Generally, these homes are harder to treat for efficiency
upgrades, typically due to the age of the property

As a result of these issues a number of social obligations are

placed on suppliers to support uptake of more sophisticated
efficiency upgrades. More importantly for the end customer bill,
it also means a higher proportion of obligations are placed on
electricity consumer bills as they are deemed a fairer spread
across a broader customer base. This is one of the key reasons
the electricity bill has been rising more significantly than gas in
recent years.

3.5 Overview of key market roles

3.5.1 Shipper / supplier

Unlike electricity, where a supplier undertakes all activity
relating to network charges and purchasing of a wholesale
contract to meet forecast demand for the customers, the GB gas
sector has a distinct role for the shipper who does this.
Shippers contract with a gas transporter (or network) to
transport their gas to consumers and may also store gas with a
storage operator to help them manage the balance between their
supplies and the consumers’ demand. A shipper purchases gas
and pays the transporter for conveying it across the transmission
and distribution network.
The shipper function is separately licensed to gas supply, and
therefore some gas suppliers are not their own shippers,
procuring services from specialist gas shipping companies who
use more sophisticated forecasting techniques. Many larger gas
suppliers will be their own shipper.
Gas suppliers are separately licensed and are the entity that
contracts to sell gas to the end consumer.
28

3.5.2 System operator

In gas, National Grid is both system operator (SO) and
transmission operator (TO) for Great Britain. The SO ensures
the system runs safely. It balances energy flows on the network
and takes action in real time to ensure supply and demand are in
balance, via a number of means. The costs of the SO’s balancing
actions are recovered from users of the networks.

Information and physical tools are employed in balancing.

For example, in the event of an expected significant supply or
demand event the SO may issue, at its discretion, a Gas
Deficit Warning. Margin notices are issued day ahead (D-1)
when total forecast demand is equal to or greater than the
Expected Available Supply. Physical tools include managing gas
in the pipes, buying and selling the gas during the gas day
(5AM – 5AM) and emergency arrangements such as demand side
reduction. In emergency situations supply to domestic customers
is prioritised over supply to power stations and industry.

3.5.3 Joint office

The Joint Office for Gas Transporters is the code administrator for
the Uniform Network Code (UNC). The UNC sets out the common
transportation arrangements for Great Britain’s gas industry. It
is a legal document, made up of 1,600 pages, which defines the
rights and responsibilities for users of the GB gas transportation
systems, and provides for all system users to have equal access
to transportation services. Suppliers are not parties to the UNC.
Therefore, any party wanting to ‘enter’ gas (e.g. producers/
importer) or ‘exit’ gas (e.g. supplier) must have a relationship
with a shipper.

Transporters, shippers and traders accede to UNC and its

principal underlying concepts:

— Gas transportation services should meet market

requirements
— System security and safety should be assured
— Pricing should reflect the real costs of the services
concerned
— Robust computer systems should be developed and
maintained
— Daily energy balancing should be operated
— Gas shippers should be incentivised to balance their own
supply and demand
 29

3.5.4 Xoserve
Launched on 1 May 2005 Xoserve, formally an internal
department of National Grid, acts as the interface between
the gas shippers and the transporters (network companies).
It provides information to all UNC parties (not gas suppliers)
related to demand, imbalance positions, and transportation
charges.

Xoserve is jointly owned by all the gas distribution network

companies and National Grid’s gas transmission business.
It delivers transportation transactional services on behalf of the
network companies to the gas shipper companies.
The main services it provides are:

— Recording and calculation of transportation volumes

— Transportation billing
— Energy balancing invoicing and cash collection
— Demand estimation
— Information services
— Supply point administration
— UK-link services (data transfer)
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