GasPriceFormationandtheNationalBalancingPoint:CanDomesticGasProductionReduceExposuretoPriceShocks?

The UK gas market uses the National Balancing Point (NBP) as its main trading hub, where wholesale gas prices are formed through the interaction of domestic production, imports, storage, pipeline flows and global gas markets. As UK gas production from the North Sea continues to decline, the UK has become increasingly dependent on imported gas, particularly liquefied natural gas (LNG). This has raised questions about whether additional domestic gas production could reduce exposure to international price shocks and improve energy security. 

This project will explore the evidence on how UK wholesale gas prices are formed and assess whether changes in domestic gas production can influence prices or price volatility at the NBP. It will develop an independent evidence base by drawing on relevant academic and policy evidence, modelling analysis and stakeholder expertise to improve understanding of the relationship between domestic supply, imports and wholesale gas pricing in the UK. 

The project will be guided by three objectives: 

1. Review the evidence on how wholesale gas prices are formed in the UK, including the roles of the NBP, European gas markets, LNG imports, storage and balancing mechanisms. 

1. Model the extent to which domestic gas production can influence wholesale gas prices and volatility, including whether increased production could reduce reliance on LNG imports or whether prices remain largely determined by wider European and global market conditions. 

1. Examine the implications of modelling findings on UK energy security, market resilience, and import dependence. 

This research will provide evidence to help policymakers, industry stakeholders and the wider public better understand the role that domestic gas production can play in the UK’s future energy pricing system.