SHT RTPA Exemption Application
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Public Version SOUTH HOOK LNG TERMINAL COMPANY LTD. IN THE MATTER OF THE GAS ACT 1986 SS 19C (AS AMENDED) APPLICATION FOR AN EXEMPTION FROM REGULATED THIRD PARTY ACCESS TO UK LNG TERMINAL FACILITIES DATED 9th October 2018 The material in this document includes charts, data and analysis which has been prepared using public and third party consultants’ data and is not intended for further publication of attribution. Any forecasts are estimates and are subject to change. Data relating to the Golden Pass Project or other LNG projects is also estimated and subject to project evaluations. 1 Public Version IN THE MATTER OF THE GAS ACT 1986 SS 19C APPLICATION FOR EXEMPTION FROM REGULATED THIRD PARTY ACCESS TO UK SOUTH HOOK LNG TERMINAL FACILITIES BY South Hook LNG Terminal Company Ltd ., a company organised and existing under the laws of England and Wales, with company number 04982132 and registered office at Dale Road, Herbrandston, Milford Haven, Pembrokeshire, Wales, SA73 3SU (“SHT”). WHEREAS, SHT is a participant in the Qatargas II LNG project (the “QGII Project”), a vertically integrated project supplying gas to the United Kingdom; and WHEREAS, as part of the QGII Project, SHT has constructed in two phases, owns and operates an LNG Terminal at South Hook, Milford Haven (the “Terminal”) with an annual average LNG processing throughput (“Base Capacity”) of ~15.6 million tons per year (“MTA”), equating to ~650 Gigawatt Hour per day (“GWh/day”); and WHEREAS, SHT successfully applied for and received an exemption from regulated third party access (“RTPA”) which was awarded on 29 November 2004 (“First Exemption”); and WHEREAS, SHT now wishes to make available to South Hook Gas Company Ltd. (“SHG”) incremental LNG processing capacity (“Incremental Capacity”) at the Terminal currently estimated to be ~3.9 MTA, equating to ~162.5 GWh/day, and apply for it to be exempted from RTPA for at least 25 years. NOW, THEREFORE, consistent with s. 19C (2) of the Gas Act 1986 (as amended) (the “Gas Act”) SHT hereby applies to the Office of Gas and Electricity Markets (“Ofgem”) for an exemption from RTPA in respect of the Incremental Capacity. 2 Public Version Contents EXEMPTION APPLICATION FOR THE TERMINAL ....................................................................... 4 1. EXECUTIVE SUMMARY ...................................................................................................... 4 2. NEW LNG PROJECTS FOR SUPPLY OF GAS .................................................................... 5 2.1 Project Sponsors and New Projects .......................................................................................... 5 2.2 Incremental Terminal Capacity ................................................................................................ 6 2.3 Supply Duration ....................................................................................................................... 6 3. SIGNIFICANCE OF THE TERMINAL TO THE PROJECT ............................................... 6 3.1 Options Considered .................................................................................................................. 6 3.2 Peak Capacity Availability ....................................................................................................... 7 4. REASONS FOR AN EXEMPTION APPLICATION ............................................................. 7 5. APPROPRIATE REGULATION FOR THIRD PARTY ACCESS ......................................... 8 5.1 RTPA Exemption Provisions ................................................................................................... 8 5.2 Significant Increase in Capacity and New Sources of Supply .................................................. 9 5.3 Market Test Considerations ..................................................................................................... 9 5.4 Market Test Results ............................................................................................................... 10 5.5 Third Party Access Provisions ............................................................................................... 10 5.6 Existing Supply Routes .......................................................................................................... 11 6. EXEMPTION REQUESTED ................................................................................................ 11 6.1 Scope of Exemption ............................................................................................................... 11 6.2 Remaining Project Volumes................................................................................................... 12 7. SATISFACTION OF GAS ACT 1986 ARTICLE 19C REQUIREMENTS .......................... 12 7.1 (a) The facility or (as the case may be) the modification will promote security of supply .... 12 7.2 (b) The level of risk is such that the investment to construct the facility or (as the case may be) to modify the facility would not be or would not have been made without the exemption. ............................................................................................................................. 13 7.3 (c) The facility is or is to be owned by a person other than the gas transporter who operates the pipeline system connected to the facility. ......................................................................... 15 7.4 (d) Charges will be levied on users of the facility or (as the case may be) the increase in its capacity. ................................................................................................................................. 15 7.5 (e) The exemption will not be detrimental to competition, the operation of an economically efficient gas market, or the efficient functioning of the pipeline system connected or to be connected to the facility. ........................................................................................................ 15 7.6 Exemption Will Enhance Competition in Gas Supply and Will Not Be Detrimental to Competition ........................................................................................................................... 21 7.7 Efficient Functioning of the Pipeline System Connected or to be Connected to the Facility. 21 ANNEX 1 – DEFINITIONS ................................................................................................................ 22 ANNEX 2 – POTENTIAL COMMERCIAL STRUCTURES ............................................................. 25 ANNEX 3 – PRIMARY AND SECONDARY CAPACITY ALLOCATION MECHANISMS .......... 26 ANNEX 4 – SOUTH HOOK TERMINAL INSTALLATION ............................................................ 28 ANNEX 5 – TERMINAL FLOW TEST .............................................................................................. 30 ANNEX 6 – GOLDEN PASS LNG EXPORT PROJECT ................................................................... 31 ANNEX 7 – SUPPLY VOLUMES AND MARKET ANALYSIS – EXXONMOBIL ........................ 32 ANNEX 8 – SUPPLY VOLUMES AND MARKET ANALYSIS – QP ............................................. 34 ANNEX 9 – UK TERMINAL UTILIZATION .................................................................................... 35 ANNEX 10 – FELINDRE PIPELINE .................................................................................................. 36 ANNEX 11 – GLOBAL GAS PRODUCTION.................................................................................... 37 ANNEX 12 – EXISTING SUPPLY ROUTES ..................................................................................... 38 ANNEX 13 – MARKET TEST ............................................................................................................ 39 3 Public Version EXEMPTION APPLICATION FOR THE TERMINAL 1. EXECUTIVE SUMMARY This RTPA exemption application demonstrates that each of the conditions set out in sections 19C(2B) and 19C(7) of the Gas Act 1986 are satisfied. In accordance with section 19C(2) of the Gas Act, SHT is requesting an exemption from section 19D of the Gas Act for the Incremental Capacity, which corresponds to ~3.9 MTA of the ~19.5 MTA Terminal peak rate capacity (“Peak Capacity”), above the Base Capacity of ~15.6 MTA. The Terminal facilities associated with the Incremental Capacity provide back- up to the Base Capacity enabling an availability >99%, as well as delivering periodic sendout up to the Peak Capacity for within-day operational purposes. As a consequence, the Incremental Capacity has significantly reduced availability as compared to the Base Capacity. Some reinforcement of the associated Terminal facilities will be carried out with the aim of making the Incremental Capacity available for commercial use though, even after reinforcement, it will remain with reduced availability compared to the Base Capacity and be subject to interruption if the Base Capacity requires back-up or the use of Peak Capacity. There would be no increase in Peak Capacity. The Incremental Capacity would enable the import of additional LNG to the UK through the development of the Golden Pass LNG Project, and/or alternative new sources of supply (“Project”), and would be assigned to the existing Base Capacity holder, SHG. There is a high investment cost and risk associated with developing the Project. Without the granting of an RTPA exemption, the investment in the Terminal would not take place and would jeopardize the upstream investment itself which needs to secure significant long term supply arrangements to proceed.