Energy suppliers served by CNG Group will “struggle” to find a new gas shipper if it exits the wholesale gas market, an industry expert has warned.
Ellen Fraser, a partner at the consultancy Baringa Partners, said the resulting costs would be likely to put a number of the affected suppliers out of business.
Earlier this week, CNG Group reportedly advised its clients to find a new gas shipper, saying it could no longer sustain its services after suffering significant “financial damage” from recent supplier failures in a letter to customers.
“CNG is the gas shipper for 18 suppliers,” Fraser told Utility Week. “Those suppliers are a mix of B2B and B2C but all of them will have to find a new gas shipper in relatively short order.
“It’s not clear how soon CNG are going to exit the market – whether they’re effectively going into administration and they’re exiting quickly, or whether they’re going to do a controlled wind down and exit over some time – but either way the suppliers need to find a gas shipper very soon as there is no ‘shipper of last resort’ process.”
Fraser said they could theoretically become gas shippers themselves – something already done by multiple large suppliers – but said this is “not credible” in the available time as it “takes a number of months” and is “not a straightforward process.”
But she said finding a new gas shipper will not be easy either and suppliers will face additional costs whilst doing so: “Firstly, they’ll have posted collateral and have trading arrangements with CNG.
“To what extent is CNG going to release the collateral and to what extent is it going to honour the existing contracts up until the point that it exits the market? This isn’t clear.
She said they will also need post collateral with the new gas shipper “and from what we understand, the credit requirements of any new gas shipper are going to be greater.”
Furthermore, wholesale gas prices will have increased substantially since suppliers negotiated their contracts with CNG and “rebuying that gas if the old shipper doesn’t honour those contracts is also going to be much more expensive”.
Fraser continued: “Based on how much financial pressure is on suppliers, especially in the B2C market currently, our expectation is that the vast majority would struggle to find a new gas shipper in terms of the timelines but also fund the credit arrangements for that new gas shipper as well.
“Our expectation is that it will have a material knock on impact on the suppliers that currently use CNG as their gas shipper and the likelihood is they will exit the market.”
She said even if a supplier doesn’t find a new shipper in time but manages to remain afloat “that will create an imbalance in the system because there isn’t anyone injecting gas into the system and customers will still be withdrawing the gas.”
This would be managed by the gas system operator, National Grid, as part of the imbalance mechanism but she warned this would become “quite complicated” as “there are various processes around how that imbalance is attributed overall.”
“That said, I suspect it’s pretty unlikely that the supplier wouldn’t have already folded by that point so it would be a pretty unusual scenario,” she added.