Because over 80 percent of UK households use gas to heat their homes the industry has to handle a huge seasonal swing in demand. Furthermore, during the winter it has to cope with significant fluctuations in demand that require flexible supply, such as extreme weather. Contributor – Professor Michael Bradshaw, Head of the Institute of Humanities – University of Worcester.
Historically, flexible supply came from simply producing more from the North Sea, but that option has gone. Instead, flexibility today comes from four sources: Norwegian offshore production, gas in storage, gas in the LNG terminals – of which there are three – and gas from Europe via the interconnectors. What gas comes from where depends on the market price – in the UK, Europe and globally – and the willingness of those that own the gas to sell it.
Even before this winter the industry was warning that things could get difficult. The reason being that back in June last year Centrica Storage announced that it was closing its long-term storage facility at Rough – a depleted gas field off the Yorkshire coast. Technical problems were making it increasingly costly to maintain. Even before then, the UK was short on storage, with capacity equivalent to 5.9 percent of total consumption in 2016, compared to places like Germany, France and Italy where it covers 20 percent of demand. With Rough gone, the UK is left with 1.4 bcm of medium range storage – equivalent to 1.8 percent of 2016 consumption, which fills and empties many times during the winter. However, in an emergency such as this it is quickly emptied and won’t refill while prices are high.
Until recently the Government did not seem phased by the closure of Rough, despite industry calls back in November to review the situation, reportedly, they are now thinking again. With limited storage, the UK is dependent on sufficient gas being in the LNG tanks and on being able to get more gas from Norway and Continental Europe, but there are physical limits on the pipelines that carry that gas.
Furthermore, it puts additional pressure on National Grid to move gas around the system. Back in December, congestion limited the ability of the interconnectors to supply gas. At present, the LNG tanks are about 35 percent full, thanks to recent deliveries from Qatar and Russia, and gas is flowing from all three terminals. But it takes two weeks for an LNG tanker to get to Milford Haven from Ras Laffan in Qatar. Thus, we have to work with what we have this week.
With GB demand surging to over 400mcm a day, a loss of capacity from any source of flexible supply, due to technical problems or an inability to attract sufficient gas from European markets, can lead to a supply emergency such as we see at present. Large industrial consumers are likely to be asked to reduce their consumption, but as the cold spell continues things could get very difficult if there were technical failures on what is an aging infrastructure.
Going forward, the EU has introduced new policies in relation to gas security, including the so-called ‘solidarity principle’ that requires member states to help one another in an emergency. What happens if the UK leaves the EU’s Internal Energy Market? Equally, what happens in Ireland which is dependent on the UK for its security of supply. A ‘cold shoulder from Brussels’ could be just as damaging as the ‘beast from the east!”