There has been a lot of news stories recently about the energy crisis sweeping the globe. Last week, we heard about one of the major shippers being in financial trouble. It isn’t often that a shipper stops deliveries, so you may be wondering why this is significant.
So, what even are gas shippers? Why are they so important to the energy industry? What effect does a shipper going bust have on the rest of the market?
This article will cover all you need to know about shippers, keeping you up to date with the energy news in our world right now.
What Are Gas Shippers?
Gas shippers bring the gas from storage, then sells it to energy suppliers. They arrange for the gas to be transported through the networks that are owned by gas transporters. Under the Gas Act 1986, all gas shippers are required to have a license from Ofgem.
What Is The Difference Between A Supplier And A Shipper?
Gas suppliers are the energy companies that purchase gas on the wholesale market, then sell it to businesses and residents. Gas shippers on the other hand arrange for transporters to take the gas from terminals and storage facilities to the consumers.
Who Do Gas Shippers Pay?
To run their gas through the national transmission network, gas shippers have to pay the National Grid. This fee also covers the transporting of gas to businesses and homes.
The figure that gas shippers pay to the National Grid is passed on to customers’ bills. This is for the maintenance and running of the 24-hour gas emergency helpline.
Why Are Gas Shippers Important?
The gas market hosts a number of different players that all play vital roles. There are producers who operate offshore gas production facilities, suppliers that buy the gas from producers then sell it to businesses and households but the main player in this industry is the gas shipper.
Gas shippers are the link between the producers and suppliers. They are the glue that holds the market together, without them we wouldn’t have an energy industry. This means that any failures on the shipper end will end up having critical impacts on the entire market.
Do Gas Shippers Balance The Market?
Shippers have the incentive to create balance in the gas markets. Each day, inputs and outputs should be balanced, meaning what goes in, should be the same as what comes out.
The National Grid Gas is responsible for ensuring demand and gas supplies are matched on a daily basis. If this doesn’t happen, then shippers will be commercially exposed.
How Do Shippers Transport Gas?
Gas comes into the UK through sources such as imports, offshore production, onshore production and gas storage sites. It is transported to consumers through two methods:
- National Transmission System (NTS)
- Local Distribution Networks (DNs)
The NTS is operated by National Grid, moving gas at around 23 mph from power stations to the local distribution network, taking on average one day to move from one side to the other.
DNs move gas from the NTS to homes and businesses through four companies:
- National Grid Gas
- Scotia Gas Networks
- Northern Gas Networks
- Wales & West Utilities
There are eight networks, all covering various areas across the UK. There are also numerous independent and privately-owned Gas Transporters (iGTs) that own around 1 million connections.
Gas shippers don’t hold responsibility for the movement of gas through the system. Their job is to specify where the gas enters and leaves the system. Shippers have the responsibility of making sure the gas that is entered meets the daily balance.
What Impact Do Gas Shippers Closing Have On The Energy Market?
In recent news, gas shipper CNG has stopped delivering gas. This has led to predictions there will be a domino effect of energy suppliers going bust. With up to 40,000 businesses facing increased bills due to suppliers ceasing trading, this will add to the current energy crisis.
Why Does A Gas Shipper Stop Delivering?
CNG had been struck with customer bankruptcies, with unpaid bills for gas shipments, leading to huge strains on their finances. In 2021, many energy suppliers have collapsed, with 3 ceasing trading in one month. With energy prices soaring, gas shippers stopping deliveries could see this number skyrocket.
Gas shippers can be impacted by numerous factors. In this scenario, CNG was forced to close due to a lot of their clients stopping trading as a result of the current energy crisis that has gripped the nation.
This unprecedented increase in global gas prices has placed a huge financial strain on many energy suppliers, meaning they are put out of business. This then places pressure on gas shippers, as they will also lose business, working their way up the chain.
What Does Gas Shippers Closing Mean For Energy Suppliers?
Well, many energy suppliers are served by the gas shipper CNG. If they are to exit the wholesale gas market, these energy suppliers will find it extremely difficult to locate a new gas supplier, resulting in more firms going out of business.
CNG supplies gas to 18 utility companies in the UK. These energy companies have been advised by CNG that they will have to purchase gas from another shipper, with will lead to a huge price spike in costs to hundreds of small businesses.
They will now have to pay the market rate, instead of the prices that were previously agreed.
Do Energy Suppliers Have To Pay More When A Gas Shipper Goes Bust?
The answer is likely yes. But how much more do energy suppliers have to pay when a gas shipper goes bust?
Suppliers that do not have a gas shipper are required to pay the National Grid for the cost incurred. This figure is the equivalent of up to three times the implied wholesale gas price in the Winter 2021-22 default tariff cap.
Energy suppliers will have to pay gas transporters quickly as security. This will be based on their gas volume, with many unfortunately unable to do so as they are already paying extremely high gas prices.
This leaves the question of whether other gas suppliers will be prepared to agree on a contract with energy suppliers, given the difficulties many are facing. With more suppliers taking this route, this will reflect on the entire gas system, meaning higher costs will be spread across all users, impacting customers too.
What Does Gas Shippers Closing Mean For Customers?
With energy suppliers finding it difficult to find a new supplier, this then leads to more going bust, creating a domino effect to customers. Just this month, over 250,000 customers were placed onto Ofgem’s “supplier of last resort process”. 2 million customers have been impacted by energy suppliers closing down.
Energy suppliers have to sell energy at a price that is way lower than it costs to buy, meaning their business is unsustainable, resulting in the closure of the company. This leads to job losses and customers being forced to move suppliers.
Customers will not have any impacts on their energy supplies, with credit balances also transferred over to their new supplier, however, they will likely face higher prices compared to their previous tariff and rates.
These customers will be placed on the standard variable rate, likely a lot higher than any fixed deal they could have got with their previous supplier.
Manufacturers like chemical and steel producers have been warned production may have to pause due to rising energy costs. This has resulted and will lead to many more small businesses and companies that are reliant on gas to go bust.
What Else Is Impacted When A Gas Shipper Closes?
Not only are small businesses and households hit hard, but schools, hospitals and other public sectors will be impacted. CNG directly supplies these institutes, creating a wide-scale crisis across the country.
Does The Gas Supply Stop If A Gas Shipped Stops Trading?
No, when a gas shipper ceases trading, there are industry processes in place that makes sure that customer will still have a continuous, uninterrupted gas supply. There are plans set for when this happens, ensuring customers are protected.
Are There Processes In Place When A Gas Supplier Closes?
With shippers having such an essential role in the energy industry, it makes the situation a lot worse. Suppliers cannot sell their gas to customers without gas shippers, placing them in trouble.
If a supplier goes bust, there are processes in place such as the ‘supplier of last resort’ or SoLR. However, for gas suppliers stopping deliveries, there isn’t an arrangement in place, meaning the industry is in the uncharted regulatory territory.
How Is The UK Impacted By Gas Shipper Closing?
The UK is facing a difficult time right now, with many bracing for a tough winter ahead. There are fears that the UK only stores enough gas reserves to match four to five winter days worth of demand.
With other countries such as the Netherlands and Germany having more than 9 and 16 times the size storage as the UK respectively, the nation is more at risk of higher wholesale gas prices than other nations.