PP/09/02
ACCESS TO UKCS INFRASTRUCTURE
Paper by Department of Trade and Industry
Summary
Access to infrastructure was identified by PPWG as a commercial barrier
to UKCS development. DTI consulted in February 2001 on the statutory
and voluntary framework, and has responded on its responsibilities - the
statutory aspects. The outstanding issue is whether to update the
voluntary Infrastructure Code, where major change requires industry
consensus. The consultation showed no consensus on the effectiveness
of the Infrastructure Code or for major change.
PPWG(O)’s views are invited on:
a)
the significance of infrastructure access as a commercial barrier,
bearing in mind the wider changes described below;
b)
whether any barriers could be addressed by major changes to the
Infrastructure Code;
c)
if so, whether it is worth trying to secure industry consensus to
such changes to the Infrastructure Code;
d)
if so, whether the best means would be through PPWG(O), with a
new PPWG(O) working subgroup.
Key issues and reactions are summarised in Annex 1. PPWG(O) is invited
to focus on these and any other ideas in forming a view.
If PPWG(O) does not see value in significant further work, the Department
is minded to issue a summary of the consultation responses and its
reaction, together with a revised Infrastructure Code containing only
technical and minor changes, which would replace the existing
Infrastructure Code.
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Introduction and context
1 Making the best use of infrastructure is recognised as crucial in the mature
UKCS. The framework for upstream third party access is a combination of:
a)
voluntary arrangement: the Offshore Infrastructure Code of Practice for
conducting commercial negotiations, introduced in January 1996); and
b)
legal backstop: powers under the Petroleum Act 1998 (which
consolidated earlier legislation)and other legislation provide for appeal
to the Secretary of State to settle disputes over access.
In addition, general UK and EC competition legislation applies to UKCS
activities. (European competition legislation applies to activities which may have
an appreciable effect on interstate trade.)
2 There have been concerns for some time that third party access to
infrastructure is a barrier to exploration and development, e.g. seen as a barrier
to development in the Undeveloped Discoveries Workgroup report to PILOT.
3 At the same time, the context for access negotiations is changing:

implementation of the Gas Directive required owners of onshore gas
processing facilities to publish their main commercial conditions for access
from August 2000;

the prospect of increasing ullage in CNS and NNS pipelines, as well as
existing ullage in the SNS, provides an incentive for infrastructure owners to
market their transportation and processing services more actively; and

the maturity of the UK North Sea has forced recognition of the importance
of new ways of working. PILOT has been a crucible for identifying and
agreeing some of the necessary changes; and

there is increasing interest that markets are competitive. Access to
infrastructure has been identified as a significant deterrent by potential
entrants to UKCS.
4 More recently, major gas consumers and others voiced concern about the
rise in gas prices and possible anti-competitive practices in the upstream gas
market. The Department consulted in November 2001 on concerns about the
working of the gas market, and whether increasing information flows would
improve market efficiency without imposing unreasonable burdens. A common
theme to both this and the infrastructure access consultation (see below) is
interest in competitive markets and in greater transparency as a way of getting
there.
DTI consultation on access to infrastructure
5 Against this background and as part of a wider consultation about the
voluntary and legal framework for access to infrastructure, the Department
consulted interested parties in February 2001 about the effectiveness of the
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industry’s voluntary Infrastructure Code on access to infrastructure, and made
proposals for changes to the Infrastructure Code aimed at increasing the
transparency of negotiations for third party access.
6 The main substantive changes proposed are set out in Annex 1, while
technical or minor changes are in Annex 2. Some final industry scrutiny of the
latter would be needed, but these are not the immediate focus.
7 Responses to the consultation showed a range of views on the effectiveness
of the Infrastructure Code and the case for major change of the Infrastructure
Code, with UKOOA and individual major infrastructure owners generally content
with the status quo. A minority of respondents thought the Infrastructure Code
irrelevant and lacking teeth to address the underlying issue of infrastructure
owner market power. Newer entrants expressed concern about the length of
time negotiations could take and the impact of this on their development plans.
There was no conclusive evidence of widespread problems.
8 Most respondents found publication of “indicative tariffs” of limited use, but
better than nothing. Some respondents expressed significant support for greater
transparency in negotiations, including the Department's proposal to extend
voluntarily to owners of gas pipelines the requirement on owners of onshore gas
processing facilities to publish their main commercial conditions of access (and
in some cases argued for extension to oil pipelines as well). Others argued
strongly against that proposal, and against the idea that contracted tariffs
should be published. In commenting about the usefulness of these existing or
possible transparency measures, some respondents said they regarded
forecasts of ullage as potentially more useful to them in planning projects and in
facilitating the negotiation process.
9 Having given careful consideration to the responses to the consultation, the
Department appreciates the potential difficulties of a move to publishing
contracted value of tariffs against limited perceived benefits. However, many
respondents would welcome increased transparency through a strengthened
Code. UKOOA and others made constructive proposals about the timetable for
provision of and arrangements for publication of indicative tariffs. The
Department also notes that several respondents went further than the
consultation document in advocating voluntary publication of main terms and
conditions for oil pipelines.
10 If industry is prepared to consider strengthening the Code, the Department
suggests it consider changes along the lines already proposed in the
consultation document or alternatives, for example, a requirement on
infrastructure owners to publish the information, which includes forecasts of
capacity, currently made available to bona fide enquirers. This might meet the
needs of potential users for access to better information about anticipated
capacity.
PPWG(O) views invited
11 The PPWG(O) has not considered infrastructure access as a commercial
barrier so far since the Department has been consulting on a range of related
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issues. The Department has now responded on the issues relating to its
statutory powers (see Annex 3 for more detail). The remaining issue is updating
- both technical and substantive - the industry Infrastructure Code of Practice on
negotiating access to infrastructure. However, although the Department can
make minor changes to the Infrastructure Code (e.g. to update to take account
of changes in legislation), major changes can only be made by industry
consensus.
12 There was no industry consensus for major change to the Infrastructure
Code. But there was general agreement that the Code is helpful to those in
negotiation. The Department sees some merit in building on this value, in
particular, in bringing increased transparency to the negotiation process, but it
will not be possible to agree significant changes unless there is an industry will
to do so.
13 The nature of the work in changing the Infrastructure Code is similar to what
the PPWG(O) has addressed in other areas - to seek change where industry
behaviour and practices are unhelpful, and to forge proposals to secure industry
agreement. The Group - and PILOT more generally - have been successful in
making advances on difficult ground in the interests of overall industry success.
14 PPWG(O)’s views are therefore invited on:
a)
the current and likely future significance of infrastructure access
as a commercial barrier, bearing in mind the wider contextual
changes described in the introduction;
b)
whether any significant barriers could be addressed by major
changes to the Infrastructure Code;
c)
if so, whether it is worth trying to secure industry consensus to
such changes to the Infrastructure Code; and whether the ideas in
Annex 1 - or any others - are worth pursuing;
d)
if so, whether the best means would be using the PPWG(O) and
PILOT architecture, with a new PPWG(O) working subgroup to
consider options and recommend changes to the Infrastructure
Code, which a consensus of the industry could accept.
What next?
15 Following discussion of this proposal by PPWG(O), the Department will
publish its summary of responses to the remaining element of the February
2001 consultation, including an outline analysis, and a draft revision of the
Infrastructure Code. This summary document will also refer to PPWG(O) views.
16 If PPWG(O) does not see value in significant further work, the draft revision
of the Infrastructure Code is likely to reflect only technical and minor revisions.
Since such changes can be made by the Department acting alone, these do not
need formal adoption by industry, and it would replace the existing
Infrastructure Code (subject to final scrutiny by industry).
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ANNEX 1
Proposals for revision of the Infrastructure Code
1 The February 2001 consultation "Oil and Gas Infrastructure: Access
Provisions and Voluntary Arrangements" made a number of proposals in
relation to revision of the industry Infrastructure Code of Practice.
a) Some of these were “technical” changes, as a result of changes in
legislation following implementation of the Gas Directive through the Gas
Regulations 2000. There were also some minor changes to clarify
meaning or improve grammar.
b) Some proposed changes were mainly about improving administration of
the Infrastructure Code.
c) Others were more substantial, reflecting proposed changes to
negotiating behaviour.
2 The consultation also threw up some other ideas about the scope and
content of the Code.
3 The technical and minor changes were reflected in the draft of a revised text
of the Infrastructure Code attached to the consultation paper. Some but not all
of the more substantial changes were also reflected in this text. The technical
and administrative changes are summarised in Annex 2.
4 PPWG(O) is invited to focus on the substantive proposals in the
consultation document and other ideas proposed by industry, set out
below.
(a) Substantive proposals in the consultation document
5 The main proposals made were:
a) Possible extension of Gas Directive requirement to offshore gas
pipelines: To extend voluntarily to owners of upstream pipelines carrying
hydrocarbons to onshore gas processing facilities the requirement on
owners to publish main commercial conditions for third party access.
The aim was to increase transparency in access to gas pipelines and
address any asymmetry created in gas transportation and processing
often offered as a bundled service by the statutory requirement on
terminal owners.
(b) More tentative proposals made in the consultation document
6 These included:
a) Tariff Transparency: Whether publication of contracted tariffs would
have value to users and be acceptable to owners.
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The aim was to provide more accurate information about tariffs to the
market. The consultation did not specify whether this would replace or be
in addition to the publication of indicative tariffs. Views were split
between thinking this desirable (provided sufficient were known of the
terms) and owners’ concerns about confidentiality.
b) Voluntary extension of Gas Directive requirement to oil
infrastructure: The Department's view was that there was no case at
present for a voluntary extension of the requirement to publish main
commercial conditions of access to owners of oil transportation and
processing infrastructure.
However, there was significant support for this idea.
c) Specifying the scope of the Code to cover interruptible and other
services.
Some wanted tighter provisions on interruptible and other services.
Ideas raised in responses
7 There was interest in:
a) improving the timetable for responses: UKOOA and others made
proposals for a combination of placing indicative tariffs on a website and
giving a longer, more realistic time for a tailored response to an enquiry.
b) addressing the timetable for concluding negotiations. There was a
view that infrastructure owners exploited the desire of developers for
speed.
c) more information about ullage, not just on request.
d) whether the Code should apply when reopening a contract as part of
redeveloping an existing field. Some thought that unimaginative and
greedy infrastructure owners stymied late field development.
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ANNEX 2
Proposed technical and administrative changes to the Infrastructure Code
(a) Technical or minor changes
1. The main technical/minor changes were:
● Deleting certain parts of the Code which were moved into legislation as
a result of the Gas Regulations 2000, e.g. the factors owners may take
into account in considering a request for access.
● Guidance on implementing the Gas Regulations requirement for owners
to publish main commercial conditions for onshore gas terminals from
August 2000.
Industry asked for guidance on a new statutory requirement. Separate
guidance has been provided. The draft Code reflected this.
● Adding the Non Operators Forum to the list of industry representative
bodies the Department must inform or consult.
● Non discrimination: Clarification of the meaning of non- discrimination.
This is potentially controversial, though most did not object or were silent.
(b) Administrative issues
2. The main administrative issues were:
● Identification of prospective developments: To include in tariff
notification data, but not for publication, information identifying the
prospective development. This would assist the Department in
comparing indicative tariff offers with information received in field
development plans
● Better reporting of indicative tariffs: To require both owners and users
to notify indicative tariffs to DTI (to increase reporting levels). Publication
by the Department would be on the basis of information provided by
owners and continue to be delayed until at least 8 weeks after being
made.
Some responses expressed concern that publication of an indicative tariff
should be delayed until after the relevant agreement has been
completed. This may be overtaken if UKOOA’s proposal is accepted (or
developed) to put indicative tariffs on websites.
● Future reviews: To review the Code in a further 3 years' time. The
consultation also sought views on the interval between reviews and
whether events other rather than time should prompt review. The aim
was to ensure timely but not too frequent updates.
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● Factual reference to UKCS coverage of competition rules, without
interpretation.
3. There were also various requests for greater clarity on what legislation
applied where.
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ANNEX 3
DTI consultation
1. DTI consulted last year on the effectiveness of the voluntary and legal
frameworks for third party access to upstream oil and gas infrastructure and
whether tariffs are a barrier to the development of new fields.
2. The Department has now issued responses on the issues which concerned
its statutory powers:

final guidance on the publication of main commercial conditions for gas
terminals, required by the Gas Regulations 2000, was published in June
2001, and

a follow-up consultation about draft guidance on how the Secretary of State
would use existing powers to settle access disputes was published in
December 2001. This covered how applications would be handled and
contained principles for setting tariffs, slightly revised in the light of
responses to the earlier consultation.
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