Expanding on the 2005 cost–benefit analysis undertaken in relation to UNC Modification Proposal 006 (‘What are the costs and benefits of near real-time gas information?’), this report for the UK Offshore Operators Association addresses two specific issues regarding the 2006 Ofgem impact assessment—the approach and analysis undertaken by Ofgem as part of its impact assessment, and the implications of incremental information release for levels of risk and volatility in the gas market. Oxera’s analysis found that the assessment of the benefit of improved economic signals from the release of near real-time information may be flawed:
there is no evidence to indicate that Ofgem’s econometric pricing equation has been tested for robustness;
the assumption that near real-time information release will automatically reduce risk premia in the market, and by different magnitudes depending on the size of outage, is not justified by any evidence;
it is incorrect to reflect the reduction in risk premia solely through an adjustment to the impact of beach flows on prices—the impact of lower risk will depend on the overall supply–demand balance at the time and the availability of additional supplies from other sources.
In addition, the report proposes that it cannot be assumed that the release of additional private information is always beneficial for the market. There are circumstances when additional private information may have no incremental benefit (when private information is already conveyed quickly to the market through the actions of individual market participants), or where the information may be destabilising (leading to excessive volatility in the market).