PRT: valuation of non-arm's length disposals and appropriations - gas - valuation of light gases from 1 January 1994 - location
Using Transco published entry charges it is possible to construct a location differential for entry at the various terminals. By doing this an arm’s length contract for delivery at Bacton can be compared with one at St Fergus or any other terminal. Since entry capacity has to be booked for one year LB Oil & Gas will determine a location differential on the basis of the maximum capacity that a shipper would need to book to take account of the full use of swing.
So with this example the Theddlethorpe price would be determined by reducing the Bacton price by the absolute differential between the cost of entering gas at Bacton and Theddlethorpe multiplied by the swing factor.