Gas Act 1986 Explained: Licensing, GEMA and Ofgem's Role

At a glance

• Primary statute: the Gas Act 1986 governs the licensing of gas transportation, shipping and supply across Great Britain (England, Wales and Scotland).
• Licensable activities (s.5): conveying gas through pipes, supplying gas, arranging shipping through a transporter's system, providing a smart meter communication service, and acting as code manager for a designated licence document. Doing any of these without a licence is a criminal offence, subject to the limited exemptions in Schedule 2A.
• Three core licence types: a gas transporter licence (s.7), and gas shipper and gas supplier licences (both granted under s.7A).
• Regulator: the Gas and Electricity Markets Authority (GEMA), established by s.1 of the Utilities Act 2000, acting through its executive office, Ofgem.
• Penalty for unlicensed activity: on summary conviction, a fine up to the statutory maximum; on conviction on indictment, an unlimited fine (s.5(3)).
• Deemed contracts: arise automatically where gas is supplied without an agreed contract, under a scheme required by Schedule 2B and Standard Licence Condition 7.
• Business dispute redress: since December 2024, both micro-businesses and small businesses can use the Energy Ombudsman, with compensation orders of up to £20,000.

What is the Gas Act 1986?

The Gas Act 1986 is the Act of Parliament that privatised the gas industry in Great Britain and replaced the previous state monopoly with a licensed, competitive market. Part I of the Act — the part most relevant to anyone dealing with a gas supply today — sets out who needs a licence to convey, ship or supply gas, what conditions attach to those licences, and who enforces them.

The Act has been amended substantially since 1986. The Gas Act 1995 split the old single "public gas supplier" authorisation into the separate transporter, shipper and supplier licences described below. The Utilities Act 2000 replaced the original single regulator (the Director General of Gas Supply) with GEMA. More recent changes — including the Energy Act 2004, the Electricity and Gas (Smart Meters Licensable Activity) Order 2012, and the Energy Act 2023 — extended the licensing regime to smart meter communication services and to "code manager" functions for industry governance documents. The 1986 Act, as amended, remains the starting point for the legal structure of gas supply.

The licensing regime: who needs authorisation

The offence for unlicensed activity (s.5)

Section 5 of the Act sets out a general prohibition: a person commits a criminal offence if, without a licence, they convey gas through pipes to premises or into a gas transporter's pipe-line system, supply gas that has been conveyed through pipes, arrange with a transporter for gas to be introduced into or taken out of its system, provide a smart meter communication service, or act as code manager for a designated gas licence document. A small number of activities are excepted under Schedule 2A to the Act — for example, certain onshore gas producers operating under separate authorisation.

A person guilty of the offence is liable, on summary conviction, to a fine not exceeding the statutory maximum, and on conviction on indictment, to an unlimited fine. Proceedings in England and Wales can only be brought by or on behalf of the Secretary of State or GEMA — a private individual cannot personally prosecute a supplier under this section.

Gas transporters (s.7)

A gas transporter licence authorises a company to convey gas through the physical pipe network — the pipes and associated apparatus — within a defined authorised area, or between transporters' systems. Transporters are the businesses that own and maintain the pipe infrastructure; in most of Great Britain this means the regional gas distribution networks. A person cannot hold both a transporter licence and a shipper or supplier licence at the same time (s.7(3)) — the roles are kept legally and operationally separate, which is one of the structural safeguards the 1995 reforms introduced to allow competition in shipping and supply while keeping the physical network under regulated, largely monopoly, control.

Gas suppliers and gas shippers (s.7A)

Section 7A authorises two further, separate categories of licence: a gas shipper licence, which authorises arranging for gas to be introduced into, conveyed through, and taken out of a transporter's pipe-line system on behalf of a supplier, and a gas supplier licence, which authorises selling gas to end users — households and businesses. Before the Gas Act 1995 reforms, one authorisation covered supply and what is now shipping; splitting the functions was intended to let more companies compete for customers without each needing to build or operate pipe infrastructure. Details of the information an applicant must provide are set out in the Gas (Applications for Licences and Extensions and Restrictions of Licences) Regulations 2019.

Standard licence conditions and what they cover

Every gas transporter, shipper and supplier licence is subject to a published set of standard licence conditions (SLCs), consolidated and maintained by Ofgem. These are not part of the Act itself but are conditions attached to each licence under the Act's powers, and a breach of a licence condition is an enforcement matter for Ofgem, separate from the criminal offence in s.5 for operating with no licence at all.

Deemed contracts

Standard Licence Condition 7 deals with the terms of contracts and deemed contracts. A deemed contract arises under Schedule 2B to the Act where gas is being supplied to a premises but no specific contract has been agreed — commonly when a business takes on new premises and starts using gas before agreeing terms with a supplier. Each supplier must maintain a published scheme setting the terms of its deemed contracts, and Ofgem's guidance confirms that condition 7.4 requires the resulting charges not to be "unduly onerous." In practice, deemed rates are usually higher than a negotiated contract, so agreeing proper terms promptly is worth doing rather than remaining on a deemed contract by default.

Micro-business and small-business protections

The standard licence conditions give enhanced protections to micro-business customers — broadly, businesses with fewer than 10 employees and turnover under roughly £1.7 million, or gas consumption below 293,000 kWh a year (a business only needs to meet one of these criteria). These protections include a requirement for suppliers to give at least 30 days' notice before a fixed-term contract renews, to state the renewal terms clearly, and to allow a 30-day window to exit the renewed contract without penalty. Larger commercial customers are generally expected to negotiate bespoke terms and have fewer statutory protections built into the licence conditions.

GEMA and Ofgem: how the regulator operates

The Gas and Electricity Markets Authority (GEMA) is the statutory regulator, established by section 1 of the Utilities Act 2000, which abolished the previous single-person office of Director General of Gas Supply and replaced it with a corporate authority. GEMA's day-to-day functions are exercised through its executive office, Ofgem (the Office of Gas and Electricity Markets). Ofgem grants and administers licences, publishes and enforces standard licence conditions, maintains a public list of all licensed gas transporters, shippers and suppliers, and can investigate and take enforcement action — including, where appropriate, prosecution — against unlicensed activity or licence breaches.

Practical implications for commercial gas users

Checking a supplier's or broker's licence

Before entering into a new gas supply contract, particularly through a broker, it is possible to check a company's licensing position using Ofgem's published list of all gas licensees. This is a straightforward way to confirm you are dealing with a properly authorised supplier or shipper rather than an unauthorised intermediary.

Switching, renewal and the absence of a cooling-off period

Businesses can generally switch gas suppliers, but business energy contracts are not covered by the domestic 14-day cancellation right that applies to consumer contracts — suppliers are not required to offer a cooling-off period on a business contract. Fixed-term business contracts often carry specific renewal and termination windows, and missing them can roll a business into an extended contract at a higher rate. For micro-business customers, the standard licence conditions require at least 30 days' notice of renewal and a 30-day post-renewal exit window; for commercial property owners with wider compliance obligations to manage, diarising these windows alongside other statutory deadlines is worth building into a standing process.

Billing disputes and the Energy Ombudsman

If a dispute with a supplier cannot be resolved directly, the first step is the supplier's own complaints process — most suppliers are required to respond or issue a "deadlock" letter within 8 weeks. If that fails, both micro-businesses and, since a 2024 threshold change, small businesses more broadly can refer a dispute to the Energy Ombudsman, which can order remedies including compensation of up to £20,000 for micro and small business customers. Larger commercial customers not covered by these thresholds typically need to rely on their contractual dispute mechanisms rather than the Ombudsman scheme.

Gas safety: what the Act does not cover

The Gas Act 1986 governs the commercial and regulatory framework for supply, transportation and shipping — it does not deal with the physical safety of gas appliances and installations inside a building. That is governed separately by the Gas Safety (Installation and Use) Regulations 1998, which place duties on landlords, employers and others responsible for gas appliances, including annual safety checks on appliances and flues in let residential and certain commercial premises. These regulations are made under health and safety legislation and are enforced by the Health and Safety Executive (HSE), not by Ofgem or GEMA. A compliant approach to gas safety sits alongside, not within, the licensing and consumer-protection framework described in this guide.

What to do next

1. Confirm whether the framework applies to you. If your premises receive a mains gas supply, the Gas Act 1986 licensing regime governs your supplier's, shipper's and transporter's authorisation, even though the day-to-day terms come from your contract and the standard licence conditions rather than the Act itself.
2. Check whether you are on a deemed contract. If you took on premises and started using gas without agreeing terms, you may be on deemed rates. Contact the existing supplier to move onto a negotiated contract.
3. Verify your supplier's or broker's licence using Ofgem's published list of gas licensees before signing a new contract, particularly if you are dealing with an intermediary rather than the supplier directly.
4. Diarise renewal and notice windows. Business energy contracts do not carry a statutory cooling-off period, so missing a termination notice date can be costly.
5. Know your redress route. Raise billing or service disputes with your supplier first; if unresolved after 8 weeks (or a deadlock letter), micro and small businesses can escalate to the Energy Ombudsman.
6. Keep gas safety separate in your mind from gas supply. Appliance and installation safety obligations sit under the Gas Safety (Installation and Use) Regulations 1998 and HSE enforcement, not the Gas Act 1986.
7. Take advice on fact-specific questions. Licensing status, contract classification and dispute strategy can turn on the specific facts of your situation — speaking to a legal adviser at an early stage helps you understand your position before committing to a course of action.

This guide provides general information about the Gas Act 1986 and its licensing framework in Great Britain. It is not legal advice and is not a substitute for advice tailored to your specific circumstances. The law described was accurate as at July 2026 and is subject to change — always check GOV.UK, Ofgem and legislation.gov.uk for the most current position.

Last reviewed: July 2026 by a non-practising solicitor · Next review due: July 2027 or on legislative change.