• Professional News
  • 04 February 2014

DONG must reduce gas transporting prices in the North Sea

The Danish Energy Regulatory Authority has determined that DONG cannot charge more than 5.75 øre per cubic metre natural gas transported via DONG's pipeline in the North Sea. The decision will have consequences for a current agreement with Maersk and for other present and future agreements.  

DONG Naturgas A/S (DONG) cannot charge more than 5.75 øre per cubic metre natural gas transported via DONG's upstream pipeline in the North Sea. This was laid down in a new decision made by the Danish Energy Regulatory Authority. DONG has previously charged up to 10 øre per cubic metre and, consequently, the price will be reduced considerably.

The pipeline owned and operated by DONG transports the natural gas produced in the oil and gas fields in the North Sea from the Tyra field to the gas treatment plant in Nybro on the west coast of Jutland.

In 2012, about 4.5bn cubic metres of gas were transported from the fields to Nybro via DONG's pipeline. Against this background, the Danish Energy Regulatory Authority estimates that the price reduction will cut down the annual costs incurred by the users of the pipeline by between DKK 150m and DKK 250m.

Based on a complaint from Maersk
Already in 2011, Maersk Energy Marketing A/S (Maersk) complained of DONG's transportation prices. In October 2012, the Danish Energy Regulatory Authority found for Maersk and decided that the price was to be reduced from 10 øre per cubic metre gas transported to a range of 5-7 øre.

Both parties filed complaints against the decision with the Danish Energy Board of Appeal which, however, upheld the decision made by the Danish Energy Regulatory Authority in the autumn of 2013. However, a change was made in that the Danish Energy Regulatory Authority was ordered to fix a more accurate natural gas transportation price of between 5-7 øre per cubic metre.

Transportation price based on broad estimate
The Danish Energy Regulatory Authority has reached the conclusion that a reasonable transportation price is 5.75 øre per cubic metre gas transported. The transportation price is composed of a rate of 5.25 øre per cubic metre plus a buffer of 0.50 øre per cubic metre resulting in a total price of 5.75 øre per cubic metre.

The Danish Energy Regulatory Authority has fixed the total price on the basis of a broad estimate based on various models including an assessment of DONG's pipeline costs, meaning operation and maintenance and return on investments. In addition, the estimate made by the Danish Energy Regulatory Authority includes market practice and competition considerations.

The Danish Energy Regulatory Authority has also reviewed the price level of similar transport pipelines in the other North Sea countries: Great Britain, Norway and the Netherlands.

Appeal against decision
The decision specifically targets the agreement entered into by and between Maersk and DONG in 2011. The price per cubic metre, however, also applies to other existing agreements and will have consequences for all future pipeline users.  

It is possible for DONG and Maersk to appeal against the decision made by the Danish Energy Regulatory Authority to the Danish Energy Board of Appeal. Such appeal must be lodged in writing no more than four weeks after DONG and Maersk having received notification of the decision.

See the decision (in Danish).

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