RESUELVO PROBLEMAS O ELABORO PRODUCTOS DE VALOR PARA LA COMUNIDAD

Given the potential impact of unconventional gas (as has been seen in the US and as described in 3.1.1.1), it would be prudent for the UK Government to take an active role in promoting its development. Supporting the development of unconventional gas

production would be an indirect way of reducing the global demand for LNG, thereby making additional LNG volumes available to flow to GB. Of course, we would expect that, over time, and depending on the trends in the relative economics of production, LNG production would be adjusted to reflect anticipated unconventional gas production.

Indeed, there has already been an example of this in Gazprom’s recent announcement9

that the Shtokman LNG project may be delayed or cancelled, given the recent increases in unconventional gas production in the US, which was originally the prime target market for Shtokman LNG.

9

Perhaps the most obvious, and direct, way for the UK Government to support

unconventional gas development would be to focus on developments in the UK. In the event that commercial unconventional gas production in the UK were to expand

significantly (as opposed to expansion elsewhere in the world), this would have the most direct impact on GB’s gas import requirements, including LNG.

It is recognised that, to date, unconventional gas production in the UK has been restricted to small scale coalbed methane developments, and that the jury is still out on the potential in the UK for other forms of unconventional gas production, for example shale gas. However, the level of interest and related exploration activity has undoubtedly increased significantly in recent months, and a number of market players have formed alliances to further pursue potential developments (Marathon Petroleum/Greenpark Energy,

BG/Composite Energy, Nexen Exploration/Island Gas) whilst others have recently established their own dedicated teams focusing on unconventional gas opportunities (Centrica).

One area on which the UK Government could focus to encourage unconventional gas developments in UK, would be to ensure that the permitting and licensing process for such developments receive the appropriate priority e.g. via any accelerated or streamlined process managed by the Infrastructure Planning Commission, and that there are no undue barriers to these developments.

In addition to pursuing developments in the UK, the UK Government could also directly promote the participation of GB gas players in exploration activities overseas, such as coalbed methane and shale gas in Europe, or further afield, e.g. China.

6.2

Policy recommendations

The assessment of the policy options against each of the criteria is summarised in Table 12 below, using a traffic light system to show each option’s contribution.

Table 12 – Summary assessment of policy options

Impac t on G B security of sup pl y Co st o f im pl e me nt a ti on E ase of im pl e me nt a ti on Com p le xit y Le gal ity Ind ust ry s u pp or t U ni nt en d ed con seq ue nce s LNG supplier relationships Long term GB LNG contracts LNG TPA arrangements effectiveness

GB regasification capacity facilitation Global LNG liquefaction development support

GB supply/demand flexibility Offshore strategic LNG stocks Onshore strategic LNG stocks Unconventional gas development support

Red signifies a negative assessment, amber signifies an ambiguous or potentially negative assessment, green signifies a positive assessment.

As noted above, we consider that the global LNG market can be regarded as a well functioning market and that GB has established successful access to this market by the development of regasification terminals, the booking of regasification capacity by a range of gas market participants and the establishment of the necessary upstream LNG supply arrangements. The global LNG market has reacted to recent perceived demand

increases by the development of significant additional liquefaction capability, which will provide a surplus of LNG supply over demand for at least the next five years, and probably for longer. Our view is that, given the appropriate pricing signals, further LNG liquefaction capacity will be developed to meet demand, and LNG will continue to flow to GB. Closer to home, the ‘GB LNG market’ is further assured by the regulatory oversight of the use of regasification capacity e.g. through Use-It-Or-Lose-It arrangements, ensuring that utilisation of GB’s regasification capacity is available to those who wish to use it. Another important element in the overall global gas supply/demand picture is the potential for increased production of unconventional gas. It is likely that the recently experienced surge in US unconventional gas production will be, at least to some extent, replicated elsewhere in the world. The timing and extent of this growth remains unclear, but any increase in unconventional gas production should serve to further ease the overall global supply/demand balance.

Our analysis shows that the risks to GB security of gas supply as a result of developments in the global gas and LNG markets are minimal, and that the GB gas system may only be under stress in extreme circumstances, for example in the event of a coincidence of severe weather (1-in-20 winter severity), an unusually high GB demand level and a major and prolonged outage of LNG supply or GB regasification infrastructure.

Therefore, on the basis that we do not foresee anything more than a low likelihood of disruption to GB gas supply, and that potential policy options involving a high degree of regulatory intervention are not required, would have the effect of distorting market operation and prices, and would be unpopular with the market participants, we would recommend the following policy options be considered for possible implementation:

developing and maintaining relationships with key LNG suppliers – we consider that, whilst this option may not have easily defined or quantifiable timescales or outputs, given the nature of the LNG market, it is key to securing long-term reliable LNG supplies to GB; and

ensuring the effectiveness of Third Party Access arrangements for LNG – as described in our analysis, whilst we consider that the GB gas market currently provides relatively easy access for LNG suppliers, periodic reviews of the access arrangements are prudent and will serve to reassure market participants that the arrangements are being actively managed to identify potential improvements.