21 Feb 2022 | 15:45 UTC

Gazprom subsidiary Wingas has UK gas supply license revoked

Highlights

Standard Ofgem revocation after three years of supply inactivity

Wingas remains a gas shipper in the UK

Company is a long-term capacity holder on Dutch-UK BBL pipeline

Wingas GmbH, a wholly-owned German subsidiary of Russia's national gas company Gazprom, has had its UK natural gas supply license revoked, UK energy regulator Ofgem said in a statement released Feb. 21.

The company, headquartered in Kassel, Germany, is a holder of long-term transportation capacity on the Dutch-UK BBL pipeline, meaning that the UK may now have one less option for importing cheaper gas from the continent.

The statement, dated Jan. 14, 2022, said that the UK gas supply license for Wingas would be automatically revoked with effect from Feb. 14, honoring the 30-day notice period prescribed with the license agreement.

The regulator exercised its right to revoke the license because "the licensee has not, within three years after the date of the license grant, commenced the supply of gas to any premises," Ofgem said.

Licenses are also automatically revoked in such a manner when a company ceases to operate as a retail gas supplier.

Wingas remains a UK natural gas shipper, meaning it is still licensed to transport gas to and from the UK, as well as trade within its borders, and on the National Balancing Point (NBP) virtual trading hub.

At the start of the current gas year in October, Ofgem had some 240 active natural gas shippers, and around 170 active licensed suppliers across domestic and non-domestic retail markets. The number of suppliers, however, would have fallen as Europe's gas crisis rages on, and wholesale prices sustain at unprecedented levels.

Affect Energy Ltd and S.C. Isramart SRL joined Wingas as the latest suppliers to see their licenses revoked last month. The former had ceased trading as a supplier.

Amid the ongoing energy crisis, Whoop Energy and Xcel Power Ltd became the latest energy suppliers to enter the Supplier of Last Resort mechanism for failing companies Feb. 18, with the total number of businesses entering this process now exceeding 35.

Contractual ties

Continental pipeline supply to the UK has been adversely impacted by the expiry of long-term transportation contracts on interconnectors linking the country to the European mainland. Wingas is currently one of a handful of shippers who retain such rights.

Long-term transportation capacity contracts are permitted under European regulation should a company invest in infrastructure upgrades, and generate binding interest from other shippers to use these facilities. They are not, however, extendable under European law.

The expiry of long-term contracts has also been a theme of the current gas dynamic on the Continent, with the EU-brokered, Russia-Ukraine transportation accord in December 2019 leading to lower Russian exports to Europe's key trading hubs in recent years than it has become accustomed to.

Moreover, the May 2020 expiry of long-term capacity on the Yamal export route has served to exacerbate this problem further. Russia has not exported on this route to Germany since late December.

In terms of the UK market, however, it was the September 2018 expiration of the 20-year contracts on the IUK link connecting the UK and Belgium which really altered the dynamic of European gas pricing.

In a similar way to which Europe became accustomed to Russian pipeline supply on existing transport capacity, the UK had also done so with IUK, with neither entirely disconnected from Eastern supply issues. Since the expiry, the UK has relied upon LNG imports to a much greater extent.

This has arguably contributed to the new price environment Europe finds itself in now, with the UK and Continental Europe both needing to meet marginal demand by sourcing on the now volatile global LNG market amid lower Russian exports, and doing so at any price.

While Wingas is still able to trade gas in the UK, its ability to supply UK customers is no longer available, and with the Continent facing unique supply challenges, it may be unlikely to export to the UK without a significant price spike.

Moreover, the necessary price spike would only likely exist on the spot market, since the joint need of UK and Continental markets to source LNG has meant their front-month wholesale markets now move largely in tandem, meaning a sustained month-ahead arbitrage to enable flows on long-term capacity is seldom realized.

This would effectively render long-term capacity either insignificant for portfolio purposes, or insufficient for securing UK supply.


Editor:

Register for free to continue reading

Gain access to exclusive research, events and more

Already have an account?Log in here