RNS No 4511u
OFGAS 
17th July 1998

Ofgas charts way forward for storage competition

Ofgas today published proposals on the way it would like to see a competitive
market develop in the storage of gas. At present, BG Storage, part of BG plc
which also owns Transco, the monopoly pipeline company, has an effective
monopoly with storage facilities in the former Rough gas field beneath the North
Sea and in underground caverns at Hornsea (East Yorkshire) as wel as at five
other liquefied natural gas (LNG) sites around Great Britain.

In a consultation document(*) Ofgas identifies six measures, which involve
significant changes to the regulatory regime, to remedy the effects of the
market power BG Storage presently possesses. They are:

*     An auction of rights to storage capacity in Rough and Hornsea on long term
contracts of around 5 years, subject to a maximum stake by a single purchaser of
15 per cent;

*     possible additional limits on the acquisition of storage rights by British
Gas Trading in such an auction, subject to security of supply considerations;

*     removal of the overall revenue cap on storage other than for LNG prior to
the auction of Rough and Hornsea capacity rights;

*     an end to common ownership of transportation and non-LNG storage by
Transco or the introduction of a stronger business separation between the two
activities;

*     removal of 'top up' gas arrangements, or a modification of the current
cost pass-though mechanism;

*     future LNG prices and services to be considered in the wider context of
reform of transportation booking and services.


The document says that unbundling storage activities along these lines is a
necessary step in securing effective competition in gas storage.

"In the event that BG Storage does not accept our recommendations, or does not
propose remedies of its own that Ofgas considers to be acceptable, then it is
open to the Director General of Gas Supply (DGGS) to make references to the MMC
under the Fair Trading Act 1973, the Competition Act 1980 or the Gas Act 1986,"
the document says.

"Subject to responses to this consultation, the DGGS would expect to make any
references by the end of August 1998 if sufficient progress to implement the
appropriate recommendations to overcome the problems identified in this report
has not been made.  This timetable is necessary if a more appropriate regime is
to be put in place for the next gas year commencing 1 May 1999," the document
says.

(*) Copies of the document:  Review of the supply of gas storage and related
services The Director General's Initial Proposals are available from the Ofgas
Library today on 0171 932 1602 and from Monday 20 July from the Ofgas
Distribution Centre, 3 Tigers Road, Wigston, Leicestershire.  Tel:  0116 277
2617.

Press enquiries:    Chris Webb                          0171 932 1608
                    Mark Wiltsher                       0171 932 1606

                    Out of hours                        0374 728971
                    Web Site                            http://www.ofgas.gov.uk/
                    Ofgas has an ISDN line for radio intereviews

END

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