OT05373 - PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - how gas is traded

The majority of gas contracts, both arm’s length and non-arm’s length, now require the gas to be delivered at the National Balancing Point (NBP) which is a notional point within the National Transmission System (NTS). Indeed published gas prices are NBP prices.

OTA75\Sch3\Para3A, however, values gas either at the place of extraction (in the case of gas extracted in the UK) or at the place in the UK where the seller could reasonably be expected to deliver the gas (in the case of extracted offshore) - see OT05375. This is commonly referred to as delivery at the ‘beach’.

Gas delivered at the NBP is typically more valuable than gas delivered at the beach as additional costs have to be incurred in moving gas from the beach to the NBP. Such costs would include NTS entry capacity payments payable to National Grid and possibly, depending on to where the gas was delivered at the beach, additional pipeline costs.

In practice, therefore, NBP price will often need to be discounted so as to exclude the capacity payments etc, if used as the basis for calculating beach prices for the purposes of OTA75\Sch3\Para3A.