This report analyses the UK gas industry, with particular emphasis on downstream activities. Upstream operations are analysed in Key Note's report on The Oil & Gas Industry. The market is analysed in terms of industrial, commercial and domestic markets, and also gives an account of the roles of gas transporters, shippers and suppliers.

In 2000, consumption of natural gas in the UK reached an estimated 1,128,692 gigawatt hours (GWh), having risen annually since 1996. Gas used for power generation accounted for most of the growth. The domestic sector, which accounts for almost a third of total consumption, remains fairly static, reflecting near market saturation.

The value of gas sales in 2000 was an estimated £8.11bn, having declined year-on-year since 1997, mainly as a result of reduced prices in the domestic sector. Values for electricity generation and industrial uses increased over the same period.

Important changes have taken place in the industry since the Gas Act 1995 and the development of the EU Gas Directive, which came into force during 2000. The UK market has now been fully opened up to competition. As a result, the market's structure has been transformed from a monopoly to an arena in which there is now a wide variety of players, including both large, multinational and small companies, UK-owned and foreign-owned companies, and many new entrants from outside the gas industry.

The leading players are Centrica PLC, BG Group PLC (including the new Lattice Group), Scottish Power PLC, TXU Europe Ltd, PowerGen PLC, and Scottish and Southern Energy PLC. Electricity companies have been quick to move into the gas supply market, although, more recently, gas-based companies have also started to market electricity. The concept of an energy company — rather than a gas or electricity company — is now well established.

The UK is important in the context of the European market and has recently become a net exporter of gas. However, in the medium term, there are signs that the UK could become a net importer again. Trade with the rest of Europe is achieved through the UK-Belgium interconnector.

Gas prices are a topical issue, since price rises have been triggered by rising oil prices in European gas markets. The recently introduced Utilities Bill will lead to the formation of the Gas and Electricity Markets Authority (GEMA) and the Gas and Electricity Consumer Council (GECC).

Gas consumption through the national transmission system (NTS) and upstream gas production are forecast to rise until 2003/2004, after which demand is expected to slow. This reflects the near saturation of the domestic sector, although growth in the industrial and power generation sectors is expected to continue.