The Energy Regulation and Markets Review - Stikeman Elliott

United Kingdom
provisions relating to title, quality and pressure as well as provisions for determining the
damages payable where either party fails to perform.
Only licensed shippers may put gas into the NTS, and only licensed shippers
may trade gas within the NTS. Physical title to all gas within the system vests with the
relevant transporter. Shippers have a right to volumes of gas on an energy equivalence
basis, not a right to specific molecules of gas. Trades within the NTS are deemed to occur
at a notional point called the national balancing point (NBP). 16 Trades are made between
shippers by way of trade nominations under the UNC. One party makes an acquiring
trade nomination and the other makes a disposing trade nomination for an equal volume
of gas. The nominations must match otherwise both will be rejected by NGG.
When a trade is made the total amount of gas in the system remains the same,
but the volume allocated to each party’s balance is altered. Shippers must balance their
positions each day. 17 Nominations may be made and adjusted prior to the beginning of
a day and may be renominated throughout the day (subject to rules on deemed flow
rates). Trade nominations may also be made throughout the day. Following the end of
each day, the system operator collates the physical flows and trade nominations of each
shipper and compares inputs and outputs to determine whether each shipper is balanced.
If a shipper is out of balance, it is deemed to buy sufficient gas from the system if it is
short or sell sufficient gas to the system if it is long to cancel the imbalance. The price at
which the deemed purchase is made can be very high and the price at which the deemed
sale is made can be very low, to incentivise shippers to balance. The vast majority of
NBP trades are made subject to the NBP ’97 terms, or under an ISDA master agreement
with an NBP annex that sets out the requirements for nominations, etc. The NBP ’97
terms have very limited credit support provisions, so it is common to see them amended,
particularly with regard to credit.
Trades just outside the exit points to the NTS are usually between shippers and
licensed suppliers, although many suppliers are also shippers, enabling a single entity to
offtake gas from the NTS and supply it to premises.
NGG is responsible for maintaining physical and operational balance on the
NTS, so will assess nominations prior to the day and during the day against actual supply
and demand. NGG have various tools available to ensure system balance, including the
use of linepack 18 and interruptible contracts with offtakers. 19
NGG also has access to the balancing market, which is an independently operated,
cleared market where shippers can make bids or offers in respect of volumes of gas. Bids
or offers may be within system (title) trades or physical or locational trades that involve
entry or exit of gas. NGG may accept bids or offers in the balancing market to achieve
physical balance. It is incentivised under its transmission licence to take such actions as
16 The NBP is also the point at which NGG calculates transportation charges.
17 ‘Day’ is defined in the UNC and each day runs from 6 a.m. to 6 a.m.
18 NGG’s use of linepack is subject to regulatory constraints.
19 Offtakers have the option of entering into interruptible contracts under which supply may be
interrupted to a specified number of times each year, in return for paying reduced [capacity]
fees.
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