UK End-Users Warn Govt of Gas Insecurity
UK end-users have written to the government requesting an urgent meeting to discuss security of gas energy supply, in the light of the loss of Rough storage capacity and the threat of short and longer-term price movements.
They say some kind of government support is needed to ensure the UK remains well stocked in winter, although stop short of asking for strategic stock requirements.
The Rough field is now a gas producer, with the last of the cushion gas expected to be depleted early next year. With gas providing over 40% of power generation and 70% of heating, the UK is starting winter from a vulnerable position – the UK's support of free markets means that, even if the gas price were high in the UK, gas in store could still be exported to even higher-priced markets as has happened in the past.
The end-users told the UK's business and energy secretary Greg Clark in their letter November 15 that the "risks to gas security pose an urgent and serious threat to economic growth and employment. Cost-effective security of energy supplies is at the heart of your industrial strategy, but we are concerned that the government is ignoring the energy price implications of the UK’s rising dependency on imported gas, forecast to reach up to 80% of total gas demand by 2030. This rising level of exposure to the vagaries of the international gas market, combined with an inadequate level of UK gas storage, will increase both the likelihood and impact of short term demand-supply imbalances on both gas and electricity price volatility, to the detriment of all consumers."
They quote the government's strategic assessment of gas security of supply published by the Department for Business, Energy and Industrial Strategy (Beis) in October which concludes that "our system is robust". The signatories say this analysis is misleading because it focuses only on potential import supply capacity and ignores the potential dangers associated with just-in- time delivery and price security resulting from the UK’s growing dependency on imported gas.
"In its own recent report, Beis admits that at times of system stress 'LNG imports might be limited by the speed with which the market responds' and 'where there is regional stress, pipeline imports may also be limited' and that 'gas storage has the capability to provide a source of flexible capacity in the intervening period'. Without adequate UK gas storage, industrial and residential consumers face the prospect of greater and more frequent spikes in both gas and electricity prices," they said.
They recalled the record high prices in the south of France in January this year, owing to a shortage of LNG tankers despite spare import capacity, and mentioned geopolitical risks too, such as the partial blockade on Qatar.
"We therefore call on the government to mount a fresh inquiry into gas security, with particular reference to the adequacy of UK storage, gas price security and the possibility of taking some form of regulatory action to mitigate the impact of increased energy price volatility," they said.
They said the UK’s comparatively low level of gas storage does not look set to increase with projects such as Baird and Caythorpe put on hold, or struggling to attain a final investment decision. Hornsea storage has also announced reductions in the level of capacity at its facilities, they said. "If a minimal level of UK gas storage is to be retained as a component of system resilience and insurance against international market price volatility, some form of regulatory framework will be required to support new and existing capacity, as is common on the continent."
William Powell