On the back of UK energy minister Malcolm Wicks' admission that the Interconnector pipeline "is not working properly", the Energy Intensive Users Group has called for the UK operator to be given control of spare capacity. However, shipper failure to maximize imports at a time of record high prices is more a result of impotent legislation than player manipulation.
Expanding the Anglo-Belgian Interconnector's import capacity in November 2005 was a key buttress underpinning Britain's attempts to address its tightest winter supply scenario in living memory. National Grid (NG) itself forecast the pipe would have been importing at an average of 42 million cubic meters per day (mcm/d) until March 2006. However, despite UK day-ahead prices hitting 170p/therm, the pipeline has imported just 15 mcm/d since October - less than one third of capacity. As result of this situation energy users want NG to be assigned the authority to utilize all vacant capacity on the major supply line.
Proponents for mandatory NG intervention can legitimately question the economics behind low pipeline import rates. The Zeebrugge spot contract tracked the National Balancing Point (NBP) at an average discount of 0.14p/therm in the first 11 months of 2005. During the same period, comparisons between Zeebrugge and the Dutch TTF hub showed spot gas in Holland was on average 5p/therm cheaper than in neighboring Belgium. Given the potential for arbitrage gains, end-users rightly want to establish why more gas is not being made available at Zeebrugge - via the Netherlands and Germany - for export to the even higher priced UK market.
However, Interconnector shareholders, who control 100% of capacity until 2018, argue that network constraints on the continent undermine their physical ability to guarantee spot deliveries at Zeebrugge, regardless of the price benefits. This brings into question whether NG could actually secure increased volumes should they gain mandatory access to spare capacity.
Herein lies the real issue. Ineffective legislation on both sides of the Channel appears not to be persuading the pipe's owners - a number of whom have production interests in the North Sea - to ship more gas to Britain. EU Directives to promote effective third party access to networks are not working as intended and bottlenecks remain.
Meanwhile in the UK, Ofgem is relatively toothless given the DTI's mandate to regulate offshore activity. Ultimately, enhanced Interconnector capacity has not translated into increased volumes because Europe's leading gas players are not properly incentivized to value UK security of supply above their incumbent continental markets.