Since go live on 1 June 2017 the new gas industry central system has been operating in line with its design and the number of incidents and defects have been reducing. However there’s been a growing concern over the approach to determining the levels of unidentified gas (UIG).
Previously the mechanism for determining UIG was a cash mechanism where shippers would effectively pay their monthly share of an annual pre-determined UIG volume charged at the prevailing monthly system average price. This equated to circa 1% of NDM volume.
Post Nexus the UIG is now a volume mechanism where shippers have to balance to an actual volume and are therefore fully exposed to market prices.
The algorithm that’s now used to calculated daily NDM demand has changed in the following ways:
Following go live in June we’ve seen unpredictable levels of volatility on a day-to-day basis as well as a significant increase in the amount of UIG being allocated. As you can see from the market level analysis (below) the volatility and volume of UIG has been significant ranging from +20% to -12%.
The graph also shows the level of volatility that would have applied prior to 1 June had the post Nexus approach to UIG been applied and this suggests year round volatility. To put this in context we have shown the current results versus the previous flat 1%.
This issue is something the industry has been working on urgently since go live and we now hope to be in a position to identify a clear way forward during December with relevant industry modifications being issued shortly thereafter.
The significant increase in UIG and its daily volatility are a material concern for all non-domestic market participants. As the non-domestic market is highly competitive and low margin it’s likely that the increased industry costs of UIG will have an adverse effect on non-domestic customer’s costs.
Once industry modifications are issued it’s important that customers lend their support to the proposals which best help reduce the size and volatility of UIG for the non-domestic market.