Where does Ireland’s gas come from and what determines its price?

For the first time since the late 1990’s we are in a position to meet 58% of our gas needs from indigenous resources at Corrib and Kinsale. The balance of our natural gas requirement is imported from Britain and the price of gas on the Irish market is determined by the marginal cost of this imported gas. Ireland’s gas market is closely linked to the UK market.

Until Corrib gas started to flow in December 2015 we imported 96% of our gas from Britain via a system of sub-sea pipelines from Scotland ¹. Thus the price we pay for our gas as a commodity is set by the price of natural gas at the UK gas trading hub, plus the cost of transporting it to Ireland via the subsea interconnectors. The UK’s natural gas trading hub is known as the National Balancing Point (NBP).

Britain has four main sources of gas – its own offshore UK North Sea natural gas (35%), Norwegian North Sea natural gas (38%), Continental natural gas (15%) ² and imported liquefied natural gas or LNG (12%) ³. LNG usage is growing in Europe and is imported by tanker from many places in the world.

The island of Ireland taps into that diverse and secure supply with three undersea pipelines that connect directly to the British gas system at Moffat in Scotland. (Fig.1).

As we in Ireland do not produce enough of our own gas to meet demand the marginal source of gas will continue to be the interconnectors with Scotland. We can access gas at wholesale prices which are in line with European market prices as the gas market in Britain is competitive ⁴,⁵. Direct imports of gas into Ireland (for example through an LNG import facility) would be possible but would only be viable if the tariff for such a facility was less than the pipeline transport cost between Britain and Ireland ⁶.

Transmission system costs are recovered through entry and exit charges. For Irish gas the transport cost comprises of a very small exit charge from the UK National Grid system and an entry charge at Moffat where it enters the Gas Networks Ireland system ⁷. These additional charges are on top of the UK national balancing point wholesale price. The cost of transporting gas from Britain (entry at Moffat plus exit) fell by 0.4% during 2015. Tariffs for transporting gas are set by the Commission for Energy Regulation (CER) ⁸.

Once the gas arrives in Ireland it is transmitted at high pressure via a ring main and exits into the lower pressure distribution system before arriving at the customer’s meter. These on-land transmission and distribution costs constitute about 40% of the final price. A margin for the supplier completes the build-up of costs that form the final price that the consumer pays. Similarly, UK customers must pay transmission, distribution and supplier margin costs.

The CER decides on the revenue that the gas transmission operator (Gas Networks Ireland) can collect from customers over the five-year period from October 2012 to September 2017. This was set at just under €1 billion to cover the costs of the gas transmission network in Ireland over the period. A similar amount is required to cover the costs associated with the low pressure gas distribution system in Ireland over the same period. The tariffs are set annually for the three entry systems to Ireland; the Interconnector system, the Inch system, and the Bellanaboy system ⁹. In addition, gas suppliers pay an exit tariff for the gas they draw from the onshore Irish ring main transmission system.