| KN40042 |
| KEY NOTE Gas Industry : October 2002 |
| Gas Industry |
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Subjects covered include: gas transport, gas transporters, gas shippers, distribution, gas,offshore,UKCS,Uk Continental Shelf, NGL, natural gas liquid, energy, natural gas,
Companies covered include: Aquila Energy, BG Group, Centrica,Innology, Lattice Group, LE Group, Northern Electric,SEEBOARD Group, Shell Gas, Dynergy Storage, Gas Transportation Company, Gaz de France, Mobil Gas, Statoil, United Utilities, International Power, Powergen, Scottish & Southern Energy, Scottish Power, Transco, Txu Europe,
EXECUTIVE SUMMARY
This report analyses the UK gas industry, focusing mainly on downstream activities. It gives an account of the roles of gas transporters, shippers and suppliers and provides analysis on the industrial, commercial and domestic markets. Also covered in this report is the generation of electricity using gas as the primary energy source.
In 2001, gas production was up by 20 percent on the figures recorded in 1998 but 2.2 percent below the 2000 value. In the next 5 years, production from UK gas fields is expected to decline as reserves begin to be consumed.
In 2001, the volume of UK gas consumption was 1,119,612 gigawatt hours (GWh) and 27.8 percent of this was used for electricity generation. Around a third is used in the domestic market. In 2001, the total value of gas sales reported an increase of 13.6 percent on the 2000 figure.
As a result of the privatisation of the national gas company and the 1995 Gas Act, along with the introduction of the EU Gas Directive, the UK gas industry is now a fully open market with a diversity of players. Companies now operating in the UK gas market include gas companies, electricity companies and multi-utilities, some of which are foreign owned.
This report profiles major players in the market, including BG Group PLC, Centrica PLC, Lattice Group PLC (which owns Transco), Innogy PLC, TXU Europe Ltd, Powergen PLC and Scottish Power UK PLC. European companies have increased their stake in the UK gas market with the imminent takeover of Innogy by a German operator, RWE, and the recent bid for Powergen by E.ON, also of Germany.
The UK gas industry faces a number of challenges. Although the UK has recently become a net exporter of gas, within the short-term, the volume of imports will continue to rise.
UK gas is being exported to continental Europe because gas prices there are linked to oil prices, thus giving producers increased revenues. Rising UK gas prices are currently a topical issue and this trend contributes to increases.
A major use of gas is in gas-fuelled plants for power generation, but falling wholesale electricity prices — largely resulting from the New Electricity Trading Arrangements (NETA) — are causing generators to cease production from some power stations. In relation to the current, very competitive UK electricity market, there is overcapacity in power plants — a factor which will dampen interest in building new plants in the immediate future. There is likely to be further consolidation in the power generation sector in the near future.
The Future gas consumption through the natural transmission system will be 1,221 terawatt hours (TWh) in 2006, which is 8.8 percent more than in 2002.
TABLE OF CONTENTS
| Executive Summary | 1 |
| 1. Market Definition | 2 |
| REPORT COVERAGE | 2 |
| Gas Transport and Transporters | 2 |
| Gas Shippers | 2 |
| Gas Suppliers — Domesticand Small Business | 2 |
| Gas Suppliers — Industrialand Commercial | 2 |
| MARKET SECTORS | 3 |
| MARKET TRENDS | 3 |
| Decline in Production | 3 |
| Rise in Prices | 3 |
| Market Structure | 3 |
| MARKET POSITION | 4 |
| The UK | 4 |
| Table 1: UK Production of Primary Fuels for the UK Energy Supplyby Type of Fuelby Volume (million tonnesof oil equivalent), 1998-2001 | 4 |
| Table 2: UK Primary EnergyDemand by Type of Fuelby Volume (million tonnesof oil equivalent), 1999-2001 | 5 |
| Table 3: Fuel Used in UK Electricity Generation by Type of Fuelby Volume (million tonnesof oil equivalent), 1997-2001 | 6 |
| Overseas | 6 |
| 2. Market Size | 7 |
| THE TOTAL MARKET | 7 |
| UK Sales by Volume | 7 |
| Table 4: UK Upstream GasProduction and Supply by Volume (gigawatt hours), 1999-2001 | 7 |
| Table 5: UK Downstream Gas Transmission Input and Output (gigawatt hours), 1999-2001 | 8 |
| Total Consumption by Volume | 8 |
| Table 6: Total UK Consumption of Natural Gas by Type by Volume (gigawatt hours), 1998-2001 | 8 |
| UK Sales by Value | 8 |
| Table 7: Total UK Natural Gas Sales by Sector by Value at Current Prices(£m and percent), 1997-2001 | 9 |
| BY MARKET SECTOR | 9 |
| Domestic | 9 |
| Table 8: Total UK Domestic Consumption of Natural Gas by Volume (gigawatt hours and percent), 1998-2001 | 10 |
| Electricity Generation | 10 |
| Table 9: Total UK Consumption of Natural Gas for Electricity Generation by Volume (gigawatt hours and percent), 1998-2001 | 11 |
| Industrial | 11 |
| Table 10: Total UK Industrial Consumption of Natural Gas by Volume (gigawatt hours and percent), 1998-2001 | 11 |
| Commercial and Other | 11 |
| Table 11: Total UK Consumption of Natural Gas in Other Sectors by Volume (gigawatt hours and percent), 1998-2001 | 12 |
| OVERSEAS TRADE | 12 |
| Table 12: UK Imports and Exports of Gas by Value (£m), 1995-2001 | 13 |
| Table 13: UK Imports and Exports of Gas by Volume (million tonnes of oil equivalent), 1998-2001 | 13 |
| 3. Industry Background | 14 |
| Recent History | 14 |
| Number of Companies | 15 |
| Table 14: Number of VAT-Based Enterprises Engaged in the Manufacture of Gasand the Distribution of Gaseous Fuels Through the Mains by Turnover Sizeband(number of enterprises), 2002 | 15 |
| Employment | 16 |
| REGIONAL VARIATIONS IN THE MARKETPLACE | 16 |
| Table 15: Gas Consumption by Domestic and Small Business Customers in Great Britainby Region by Annual Demand(000 consumers andgigawatt hours), 2001 | 16 |
| Table 16: Gas Consumption by all Customers in Great Britain by Regionby Annual Demand (000 consumers and gigawatt hours), 2001 | 18 |
| DISTRIBUTION | 19 |
| HOW ROBUST IS THE MARKET? | 19 |
| LEGISLATION | 20 |
| European and UK Legislation | 20 |
| Regulation by Ofgem | 21 |
| KEY TRADE ASSOCIATIONS | 21 |
| Energy Industries Council | 21 |
| Energy Information Centre | 22 |
| Eurogas | 22 |
| Gas Forum | 23 |
| Institution of Gas Engineers | 23 |
| International Gas Union | 23 |
| Society of British Gas Industries | 23 |
| 4. Competitor Analysis | |
| THE MARKETPLACE | 25 |
| Broadly-Based Multi-Utilities | 25 |
| Electricity Companies | 25 |
| Large Vertically-IntegratedCompanies | 25 |
| Marketing Companies | 25 |
| Specialist Companies | 25 |
| MARKET LEADERS | 26 |
| Aquila Energy Ltd | 26 |
| BG Group PLC | 27 |
| Centrica PLC | 28 |
| Innogy PLC | 30 |
| Table 17: Turnover for Innogy Holdings PLC by Sectorby Value (£m),March 2000-March 2001 | 32 |
| Lattice Group PLC | 32 |
| LE Group PLC | 34 |
| Northern Electric PLC | 35 |
| Powergen PLC | 36 |
| Scottish Power UK PLC | 37 |
| Scottish and Southern Energy PLC | 38 |
| SEEBOARD Group PLC | 40 |
| Shell Gas Ltd | 40 |
| TXU Europe Ltd | 41 |
| Other Companies | 42 |
| Dynergy Storage Ltd | 42 |
| Gas Transportation Company Ltd | 43 |
| Gaz de France | 43 |
| Mobil Gas | 43 |
| Statoil | 43 |
| United Utilities PLC | 43 |
| OUTSIDE SUPPLIERS | 44 |
| Exhibitions | 45 |
| 5. Strengths,Weaknesses, Opportunities and Threats | |
| STRENGTHS | 46 |
| WEAKNESSES | 46 |
| OPPORTUNITIES | 46 |
| THREATS | 47 |
| 6. Buying Behaviour | |
| GAS CONSUMPTION | 48 |
| Table 18: UK Consumption of Natural Gas by Sector (gigawatt hours),1999-2001 | 48 |
| Industrial Customers | 49 |
| Commercial and Other Customers | 50 |
| Domestic Customers | 50 |
| Table 19: Householders’Expenditure on Energy by Type of Fuel and Power at Current Prices (£m),1990, 1995, 1998, 1999 and 2000 | 50 |
| Table 20: UK Householders’ Expenditure on Energy by Type of Fuel and Power at Constant 1995 Prices (£m), 1990, 1995,1998, 1999 and 2000 | 51 |
| Table 21: Average Expenditure on Fuel per Consuming UKHousehold (£ per week),1995/1996-1999/2000 | 52 |
| 7. Current Issues | |
| SECURITY OF CURRENT GAS SUPPLIES | 53 |
| Security of Future Gas Suppliers | 53 |
| GAS PRICES | 53 |
| Table 22: Average Net SellingValue of Gas (pence perkilowatt hour), 1997-2001 | 54 |
| Electricity Generation | 54 |
| Electricity Prices | 54 |
| CORPORATE ACTIVITY | 55 |
| 8. The Global Market | |
| WORLD RESERVES AND PRODUCTION | 56 |
| Table 23: World Gas Consumption | |
| and Forecast Gas Consumption(trillion cubic feet), 1999, 2005, 2010, 2015 and 2020 | 56 |
| European Reserves and Production | 57 |
| Table 24: European Gas Consumption and Forecast Gas Consumption(trillion cubic feet), 1999, 2005, 2010, 2015 and 2020 | 57 |
| 9. Forecasts | |
| INTRODUCTION | 58 |
| FORECASTS 2002 TO 2006 | 58 |
| Table 25: Forecast Total UK Consumption of Natural Gas by Volume (terawatt hours),2002-2006 | 59 |
| Table 26: Forecast Total UK Natural Gas Sales by Value at Current Prices (£m), 2002-2006 | 60 |
| FUTURE TRENDS | 60 |
| Importance of Gas | 60 |
| Gas for Power Generation | 60 |
| Renewable Energy | 60 |
| Upstream Trends | 60 |
| More Foreign Company Activityin the UK Market | 60 |
| Multi-Utilities | 61 |
| 10. Company Profiles | |
| BG Group PLC | 63 |
| Centrica PLC | 65 |
| Innogy PLC | 67 |
| Lattice Group PLC | 69 |
| Powergen PLC | 71 |
| Scottish Power UK PLC | 73 |
| TXU Europe Ltd | 75 |
| 11. Further Sources | |
| Associations | 77 |
| Publications | 79 |
| Directories | 80 |
| General Sources | 80 |
| Bonnier Information Sources | 81 |
| Government Publications | 82 |
| Other Sources | 83 |
| Understanding TGI Data | 85 |
| Number, Profile, Penetration | 85 |
| Social Grade | 86 |
| Standard Region | 86 |
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Last updated by Amanda Porteous February 2004
