Gas Shippers and Suppliers Licensing Regime 

The gas shippers and suppliers licensing regime is a central part of the regulatory structure governing the gas market in Great Britain. It is principally based on the Gas Act 1986, substantially reformed by the Gas Act 1995, the Utilities Act 2000, subsequent energy legislation, and licence conditions administered principally by Ofgem/Gas and Electricity Markets Authority (GEMA).

The regime separates two commercially different activities:

Gas shipping — arranging for gas to enter, move through, and leave a gas transportation network.

Gas supply — selling/supplying gas to customers whose premises receive gas through pipelines.

Ofgem's current licensing information confirms that licences are required for activities including arranging the transportation of gas and supplying gas, subject to statutory exemptions and exceptions. (Ofgem)

1. Meaning of Gas Shipper and Gas Supplier

A. Gas shipper

A gas shipper is essentially the market participant responsible for arranging the movement of gas through a gas transportation system.

Under section 7A(2) of the Gas Act 1986, a licence may authorise a person to arrange with a gas transporter for gas to be:

introduced into a pipeline system;

conveyed through the system; or

taken out of the system.

The shipper therefore occupies an important intermediary position between gas producers/importers, the transportation network and suppliers or large consumers.

Ofgem's actual licence notices use this statutory formulation. For example, the 2025 licence granted to Unipec U.K. Co. Limited authorised the company to arrange with a gas transporter for gas to be introduced into, conveyed by means of, or taken out of a pipeline system. (Ofgem)

B. Gas supplier

A gas supplier is the undertaking that supplies gas to premises through a pipeline system.

Section 7A(1) provides for licences authorising a person to supply gas to specified premises and, subject to the statutory framework, to premises where the expected supply exceeds the relevant statutory threshold.

Thus:

Shipper = arranges transportation of gas through the network.

Supplier = supplies gas to the customer.

The two functions can be performed by the same corporate group, but they are legally distinct regulated activities.

2. Statutory Foundation: Gas Act 1986

The principal statutory foundation is Part I of the Gas Act 1986.

Section 5 establishes the general prohibition on carrying out specified gas activities without an appropriate licence or exemption. Ofgem's licensing guidance identifies transportation, shipping and supply as activities subject to the licensing framework. (Ofgem)

The key provisions include:

The statutory structure therefore establishes licensing as the gateway through which commercial participation in the regulated gas market takes place.

3. Gas Shipper Licence

A gas shipper licence does not primarily mean ownership or physical operation of a pipeline.

Instead, the shipper contracts with a gas transporter and arranges the movement of gas.

For example, Ofgem's 2023 licence notice for NFE Gas Trading Limited describes the licence as authorising the company to arrange with a gas transporter for gas to be introduced into, conveyed by means of, or taken out of a pipeline system. (Ofgem)

Principal functions of a shipper

A shipper may be responsible for:

purchasing gas;

arranging transportation capacity;

nominating gas quantities;

balancing injections and withdrawals;

complying with network codes;

managing contractual transportation arrangements;

paying transportation charges;

managing imbalance exposure;

supplying gas to another licensed supplier or eligible customer.

The shipper is therefore an important participant in the wholesale gas market.

4. Gas Supplier Licence

The supplier operates at the customer-facing end of the market.

Its functions may include:

purchasing gas;

contracting with customers;

arranging delivery through shippers;

billing customers;

complying with consumer protection requirements;

managing customer switching;

complying with smart-meter and metering requirements;

complying with price and information rules where applicable;

maintaining continuity-of-supply arrangements.

Ofgem's current licensing system distinguishes between domestic and non-domestic supply licences, and its public register includes gas supply and gas shipping licensees. (Ofgem)

5. Why the Gas Act Separates Shipping and Supply

The distinction developed particularly strongly following the restructuring of the British gas industry.

Historically, British Gas operated as an integrated monopoly. The Gas Act 1995 was an important step toward separating transportation from supply and establishing competitive gas supply markets.

The transformation is described in British Gas Trading Ltd v Data Protection Registrar. The tribunal recorded that the Gas Act 1995 provided the framework for separating control of gas transportation through pipelines from gas supply to customers and that BG Trading subsequently became a licensed gas supplier. (BAILII)

The policy logic was:

Gas production/import → shipper → transportation network → supplier → customer

This separation promotes:

competition;

third-party access;

non-discriminatory network access;

transparency;

prevention of monopoly control;

consumer choice.

6. Licensing Authority

The regulatory authority is principally the Gas and Electricity Markets Authority (GEMA), operating through Ofgem.

Ofgem's current guidance states that it issues energy licences to companies wishing to generate, store, move or supply energy and specifically identifies activities involving transporting, arranging transportation or supplying gas. (Ofgem)

The licensing process normally involves:

identifying the activity;

determining whether a licence is required;

identifying whether an exemption applies;

submitting an application;

regulatory assessment;

consultation/notice where required;

grant of the licence;

compliance with licence conditions.

7. Licence Conditions

A licence is not merely permission to enter the market.

It creates a continuing regulatory relationship between the licensee and Ofgem.

Licence conditions can impose obligations concerning:

network access;

financial and operational arrangements;

customer protection;

information provision;

accounting;

regulatory reporting;

emergency arrangements;

supplier-of-last-resort mechanisms;

metering;

industry codes;

market conduct.

Ofgem's licensing materials explain that gas licences contain standard conditions applicable to licensees, alongside potentially special conditions. (Ofgem)

8. Separation from Gas Transporter Licensing

An important structural rule is that the holder of a gas transporter licence cannot simply obtain a gas shipper or supplier licence in circumstances prohibited by the Act.

Section 7A(3) provides that a licence under section 7A cannot be granted to a person holding a gas transporter licence under section 7.

This is designed to preserve the institutional separation between:

network operation and competitive market activities.

Ofgem licensing guidance has historically expressly recognised this separation. (Ofgem)

This is particularly important because gas transportation networks have significant characteristics of a natural monopoly, whereas gas supply and shipping can be competitive activities.

9. Exemptions

Not every gas-related activity necessarily requires a full licence.

Section 6A of the Gas Act 1986 provides mechanisms for exemptions.

Ofgem currently advises prospective market participants to check the Gas Act 1986, the Energy Act 2023 and relevant exemption arrangements before applying for a licence. (Ofgem)

This reflects the principle that regulation should distinguish between:

activities presenting significant network or consumer risks; and

activities that can safely operate under an exemption.

10. Application and Grant of Licence

The regulator examines whether the proposed licence is consistent with the statutory framework and regulatory objectives.

The application process can require information concerning:

corporate identity;

financial position;

ownership;

management;

intended activities;

compliance arrangements;

industry-code arrangements;

customer arrangements;

operational capability.

However, the licensing regime is not designed simply to assess whether a company has an attractive business plan. Ofgem's historical guidance recognised that the licensing process should not unnecessarily become an approval mechanism for an applicant's commercial business plans. (Ofgem)

11. Continuing Compliance

After receiving a licence, the licensee must comply continuously with its conditions.

This is important because licensing is not a one-time regulatory event.

A supplier can therefore face regulatory consequences if it:

fails to comply with licence conditions;

fails to protect customers;

breaches reporting requirements;

fails to comply with industry arrangements;

becomes financially or operationally incapable of continuing supply.

Similarly, a shipper must comply with the rules governing transportation arrangements and the relevant gas network.

12. Licence Modification

Energy markets change rapidly, so licences cannot remain completely static.

The Gas Act therefore provides mechanisms through which licence conditions can be modified.

Licence modification is particularly significant where the regulator needs to respond to:

market restructuring;

consumer protection concerns;

changes in network arrangements;

decarbonisation;

hydrogen integration;

smart metering;

market-wide settlement;

security of supply.

Contemporary gas-network licence modification disputes demonstrate that licence modifications can become subject to formal appeal proceedings. For example, in 2026 several gas distribution companies obtained permission to appeal aspects of GEMA's RIIO-3 licence modifications. (GOV.UK)

13. Licence Revocation

A licence can also be revoked.

Revocation may become relevant where:

the licensee requests termination;

statutory conditions are breached;

the company ceases the relevant activity;

regulatory conditions for continuation are no longer satisfied.

A practical example is I.C.S. 1989 Limited, where Ofgem revoked the company's gas supplier licence after the company requested revocation and the Authority was satisfied that the necessary arrangements had been made. (Ofgem)

This demonstrates an important principle:

A supplier's withdrawal from the market cannot simply be treated as an ordinary corporate decision where customers might be affected.

Continuity-of-supply arrangements must be considered.

14. Supplier of Last Resort

One of the most important consumer-protection elements of the licensing regime is the Supplier of Last Resort (SoLR) mechanism.

If a licensed supplier fails or its licence is revoked, customers should not simply be left without a gas supplier.

Ofgem can therefore appoint another licensed supplier to take over affected customers.

Daligas example

In 2021, Ofgem directed Shell Energy Retail Limited to act as Gas Supplier of Last Resort for customers of Daligas Limited following circumstances that entitled the Authority to revoke Daligas's licence. (Ofgem)

Enstroga example

Ofgem similarly appointed E.ON Next Energy Limited as Supplier of Last Resort for customers of Enstroga Ltd. (Ofgem)

These decisions demonstrate that licensing is closely connected with consumer continuity and market stability.

15. Case Law

Case 1: British Gas Trading Ltd v Data Protection Registrar [1998]

This case is useful for understanding the historical development of the licensing regime.

The tribunal discussed the transformation of British Gas following the Gas Act 1995. British Gas's former monopoly structure was replaced by a framework in which transportation and supply were separated and competitive licensed suppliers could operate. (BAILII)

Legal significance

The case illustrates:

the transition from monopoly to competition;

separation of transportation and supply;

the emergence of licensed suppliers;

the significance of the Gas Act 1995;

the regulatory status of British Gas Trading.

Case 2: The King (on the application of Wales & West Utilities Ltd) v Competition and Markets Authority [2026] EWHC 99 (Admin)

This recent case demonstrates the continuing legal significance of gas licence conditions and their modification.

The litigation concerned regulatory issues associated with gas distribution licence modifications and involved GEMA and major gas network companies. (vLex)

Significance

It demonstrates that:

Gas licences are legally enforceable regulatory instruments, not merely administrative permissions.

It also shows that disagreements concerning regulatory modifications can proceed through formal statutory appeal and judicial review mechanisms.

Case 3: Northern Gas Networks Ltd v HMRC

This litigation concerned gas distribution infrastructure and statutory rights under the Gas Act 1986.

Although it was not primarily a shipper/supplier licensing dispute, it illustrates the broader legal importance of the statutory gas-network framework, including the relationship between regulated network infrastructure and statutory rights. (vLex)

Its relevance is therefore principally contextual rather than a direct authority on section 7A licensing.

16. Ofgem's Modern Licensing Practice

The regime remains actively used.

Ofgem's current register contains categories including:

gas shippers;

domestic gas suppliers;

non-domestic gas suppliers;

gas transporters;

interconnectors;

other regulated gas entities. (Ofgem)

Recent licensing decisions demonstrate that the regime continues to facilitate entry into the market. For example:

Unipec U.K. Co. Limited received a gas shipper licence in February 2025. (Ofgem)

EP Commodities AG received a gas shipper licence in September 2025. (Ofgem)

Fuse Energy Supply Limited received a gas shipper licence in November 2024. (Ofgem)

These decisions demonstrate that section 7A remains a functioning legal gateway for gas-market participants.

17. Relationship with Competition Law

The licensing regime should also be understood alongside competition law.

The basic regulatory architecture attempts to ensure that:

network monopoly ≠ competitive supply monopoly

A transporter controls essential infrastructure, while shippers and suppliers should be able to compete for customers and commercial opportunities subject to the regulatory framework.

Potential competition concerns include:

discriminatory network access;

exclusionary conduct;

abuse of market power;

anti-competitive contractual arrangements;

information advantages;

discriminatory treatment of market participants.

Consequently, gas licensing operates alongside broader competition regulation rather than replacing it.

18. Consumer Protection

Gas suppliers have particularly significant obligations because residential customers depend on continuous access to energy.

The regulatory framework therefore addresses:

transparent contracts;

billing;

switching;

vulnerable consumers;

continuity of supply;

complaints;

metering;

supplier failure.

The Supplier of Last Resort mechanism illustrates the importance placed on protecting consumers when an ordinary licensed supplier can no longer operate. (Ofgem)

19. Security of Supply

The licensing regime also contributes to security of supply.

The regulator's statutory duties include consideration of reasonable demands for gas. Ofgem expressly relied on this duty when making Supplier of Last Resort directions. (Ofgem)

The regulatory chain is therefore:

Licensing → market participation → network access → supply obligations → contingency arrangements → security of supply

This is particularly important during:

extreme weather;

infrastructure failures;

geopolitical supply disruption;

major supplier insolvency;

pipeline disruption;

market-wide emergencies.

20. Gas Shipping and the Energy Transition

The traditional licensing regime was developed primarily around natural gas. However, the definition of "gas" in the modern Gas Act framework has evolved and includes substances such as hydrogen and certain mixtures. (Statutes.uk)

This creates important future regulatory questions concerning:

hydrogen blending;

100% hydrogen networks;

repurposed gas pipelines;

hydrogen shippers;

hydrogen suppliers;

biomethane;

renewable gases;

network conversion;

quality standards;

metering and settlement.

Consequently, the traditional shipper/supplier model may become an important foundation for future low-carbon gas markets.

21. Critical Legal Issues

Several legal questions are particularly important in analysing the regime.

1. Market entry

Does the applicant satisfy the statutory and regulatory requirements for receiving a licence?

2. Scope of licence

What customers, premises and activities are actually authorised?

3. Licence compliance

Has the licensee complied with its continuing conditions?

4. Network access

Can a shipper obtain fair and non-discriminatory access to the transportation system?

5. Supplier failure

What happens to customers if a supplier becomes insolvent?

6. Regulatory intervention

When can Ofgem modify or revoke a licence?

7. Competition

Does the conduct of a supplier, shipper or network operator restrict competition?

8. Energy transition

Can existing licensing structures accommodate hydrogen and renewable gases?

22. Distinction Between Shipper, Supplier and Transporter

The distinction is fundamental.

A shipper does not necessarily own the gas network.

A supplier does not necessarily own the transportation infrastructure.

The transporter operates the regulated network.

23. Overall Legal Framework

The regime can be represented as follows:

Gas Act 1986
↓
Licensing prohibition
↓
Section 7A
↓
Gas Supplier Licence / Gas Shipper Licence
↓
Ofgem/GEMA regulation
↓
Licence conditions + industry codes
↓
Network access + market participation
↓
Consumer protection + security of supply
↓
Enforcement / modification / revocation / Supplier of Last Resort

Conclusion

The gas shippers and suppliers licensing regime is fundamentally a mechanism for controlling entry into, and continuing participation in, the competitive gas market. The Gas Act 1986, particularly section 7A, provides the principal statutory basis for distinguishing gas supply from gas shipping. A shipper arranges the movement of gas through the transportation network, whereas a supplier provides gas to customers.

The historical transformation from the British Gas monopoly to competitive licensed supply, discussed in British Gas Trading Ltd v Data Protection Registrar, demonstrates why this separation became legally important. (BAILII) Modern Ofgem licensing practice confirms that section 7A remains actively used for new gas-market participants. (Ofgem)

The regime goes beyond simple licensing. It creates a continuing system of regulatory obligations, network access, consumer protection, enforcement, licence modification and continuity-of-supply arrangements. The Supplier of Last Resort cases involving Daligas and Enstroga demonstrate how the regime protects consumers when licensed suppliers fail. (Ofgem)

In the future, the most significant legal challenge will be adapting this established framework to hydrogen, biomethane, renewable gases and repurposed gas infrastructure, while maintaining competition, safety, consumer protection and security of supply.