Wednesday, 30 November 2016

UK winter energy supply 2016-17

Following on from my previous post on gas supply, here's an update on the overall energy situation in the UK this winter.

The good news is that the gas storage site at Rough is due to come back online by 9 Dec, according to Centrica. Of course, it's still only 1/3 full, so we're not out of the woods yet.

The bad news is that several nuclear power stations in France have been offline for safety checks for some time now, and the result is that instead of importing up to 2GW of electricity from France, the UK is importing less, or even exporting to France. You can see this live on the graphs at Gridwatch. This extra power is largely coming from our CCGT (gas) power stations, which of course means increased gas use - this was already showing up in the graph I posted a few weeks ago, and has continued since then. (The red line is 2016 - click for a larger version)

It's also proving to be a colder than average winter so far in the UK, so we'll have to wait and see how things turn out over the coming months...

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Thursday, 3 November 2016

Outlook for UK gas supply in winter 2016/17

The UK Met Office has released it's long range outlook for Nov 2016 to Jan 2017, and it's expecting at least the first part of the winter to be a bit colder than average - there's some in depth discussion of it in this BBC video. So now's a good time to review what shape UK gas supplies are in.

A few months ago I commented on the news that the long range storage at Rough was out of action and only about one third full. At the time Centrica was expecting withdrawal from Rough to be possible by 1 Nov, but the latest statement on their website now says second half of November. The graph below (click it for a larger version) shows the storage level in Rough over the past decade, with 2016 in red. As you can see, no gas has been injected for some months, leaving the store short of about 26,000 GWh of gas, which is unprecedented in the past decade.
UK long range gas storage 3nov2016

To be fair, the operators of the medium range storage sites have done their best, with gas stored at record levels - but this only equates to an extra couple of thousand GWh compared to recent years, so does not offset the missing gas from Rough.
UK medium range gas storage 3nov2016

LNG stocks are at a fairly typical level, but these fluctuate as imports arrive periodically - the hope will be that more LNG tankers will arrive this winter than a year ago.
UK LNG stocks 3nov2016

The impact of Rough's outage and low stock is showing up in wholesale gas prices, which have more than doubled over the past two months - this has yet to feed through into consumer bills.
UK gas buy price 3nov2016

The other important factor to bear in mind is what's happening with electricity generation. A significant number of coal-fired power plants have closed in the past year or two, and this is good as they are high emitters of CO2. But the slack has been taken up by gas-fired power plants instead, rather than solely renewable energy or nuclear power. The graph below shows how power station demand for gas is at a multi-year high for this time of year.
UK power station gas demand 3nov2016

So what's the conclusion? Well, if it doesn't get too cold, Rough comes back online as planned, nothing else breaks and we get enough LNG deliveries, then we'll just see prices rise. If one or more of those factors doesn't work out favourably, then it may become necessary to restrict industrial gas or electricity usage, to ensure that gas supply to homes can be maintained. Let's hope and pray that we don't get another winter like 2010/11:
DSC_5438

Mike

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Monday, 18 July 2016

Bad news for UK gas supply winter 2016/17

If Rough was a car, you'd scrap it and buy a new one. But it's actually the UK's biggest gas storage facility, and supplies up to 10% of peak winter demand for gas. A few weeks ago I wrote about how planned maintenance was preventing Rough being filled with gas until early August. Well, the news has now got worse. The BBC summarises it here, but here's the detail straight from Centrica's website:

On 22 June 2016, CSL announced that in the course of conducting the testing works it had identified an additional issue with one of the wells. This resulted in CSL ceasing all injection and withdrawal operations pending the further testing in relation to the issue identified. This program of testing was estimated to last at least 42 days.
CSL has now ended the 42-day testing program early and has plugged the affected well. However, the affected well has identified potential uncertainties in the remaining untested wells. CSL will therefore continue with an enhanced version of its original calliper run and seal testing program. We estimate completion in March to April 2017. In the meantime because of the uncertainty as a prudent and safe operator CSL cannot inject or withdraw gas from Rough.
CSL is also examining the feasibility of returning a number of wells to service for the Winter 2016/2017 withdrawal season. CSL anticipates it will complete this study by 30 October 2016. CSL currently anticipates that at least 4 wells will return to service for withdrawal operations by 1 November 2016. In respect of injection CSL cannot increase the Rough reservoir pressure during the testing programme.
If you're wondering how big an impact plugging one well is, and what possibly having four wells open in November means, the Operational Guide to Rough from 2015 says that it had 24 operating wells for injection, and 29 for withdrawal. Rough is currently about a third full, so opening some wells for withdrawal in November is of some use, but with no chance to inject any new gas, the UK is going to be left exposed to any further malfunctions or international incidents, and may even struggle to cope with a moderately cold winter. The ability to import LNG will be crucial to maintaining supply over this winter - this may work fine, but will cost us more, as we will have to outbid other countries to make sure we get what we need.

It's worth remembering that in Q1 2016 38% of the UK's electricity was generated by burning gas - this represents 25% of total gas use in the UK (data from here). So a shortage of gas implies a potential shortage of electricity, especially with more of our ageing coal plants having shut down over the past year.

One slightly odd thing is that National Grid's Prevailing View website is missing information on gas storage. One could be forgiven for thinking they're trying to avoid scaring people...

We may get more news, good or bad, on Rough over the coming months, but the key thing to look out for now will be long range winter weather forecasts. Time to start praying for a mild winter I think...


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Friday, 24 June 2016

While you were watching the EU referendum, something happened at Rough...

While we were all caught up in the EU referendum this week, there was an item in the news about the UK's largest gas storage facility, Rough:

Wholesale gas prices have been volatile following news that the UK's largest gas storage facility is being shut down for 42 days.
Normally, gas would be being injected into Rough right now, and was being until a couple of days ago, as you can see from the first graph on this page. The update on Centrica's website says:
In March 2015, CSL began conducting testing and verification works on the Rough wells. In the course of conducting these works, CSL has identified an additional issue on one of the wells tested. As a consequence, CSL has ceased all Rough injection and withdrawal operations. CSL will seek to expedite testing on the issue identified and expects this period of testing to last at least 42 days.
The current restart date is 3 August, but of course it could be later, given the above update says "at least 42 days". If storage isn't filled quickly enough over the summer, we'd better hope for a mild winter, or we might run into difficulties... One thing that's clear is that Rough is showing its age, and has had several mechanical breakdowns in the past 10 years. Worth keeping an eye on over the summer...

Easington Langeled Terminal

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Friday, 16 October 2015

UK gas supply outlook for winter 2015/16

It was back in April that I blogged about the cut Centrica had made in the capacity at Rough, due to problems with some of the wells limiting the maximum operating pressure. At the time, Centrica hoped that by now the capacity would have been restored, but a press release in July said that they now didn't expect to know if this would be possible until some time between September and December 2016! The net result is that the capacity of Rough has been reduced by 25%.

Clearly this presents a problem for UK winter gas supply, so it's not surprising that another July press release stated that the Oil and Gas Authority had given Centrica permission to reduce the minimum operating pressure of Rough, thus 'converting' some of the cushion gas (which would normally be left in the store) into working gas, which can be withdrawn and re-injected. This shows up on the chart below (black line = 2015), where a sudden jump up in July can be seen, due to the addition of about 4,625 GWh (or about 400 mcm). The same trick was pulled in 2013 (red line in chart below), after dipping into the cushion gas in April 2013, capacity was increased arbitrarily in the October 2013. It's a bit like keeping driving your car after the fuel gauge has gone into the red - it works OK for a while, but you can't do it for long...

Despite this bit of creative accounting, the chart below shows that we are still going into this winter with a record low amount of gas in storage, and National Grid's Winter Outlook notes this on page 43, saying storage is reduced by 14%, from 4.9 bcm to 4.2 bcm. It would have been 22% less if Centrica hadn't fiddled the figures by dipping even further into the cushion gas.

UK long range gas storage 16 Oct 2015

Medium range storage is looking better, with increased capacity and a record amount in storage, but nowhere near enough to make up for the shortfall at Rough.

UK medium range gas storage 16 Oct 2015

So, the big question has to be about demand. We have fewer coal power stations than we did a year ago (which is a good thing, of course!), which could in theory mean that more gas gets burned to generate electricity. But the big factor will be the weather as always, which is hard to predict at this stage, as there are several extra factors to bear in mind:
Time will tell, and we'll soon see if this winter looks like this:
DSC_5364

or like this:
DSC_5428

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Saturday, 11 April 2015

UK gas storage capacity slashed

A couple of weeks ago Centrica Storage quietly made an announcement on its website:

As part of CSL’s assurance programme and as a responsible operator and given the age of the field and installation, CSL has decided to limit the maximum operating pressure of the Rough wells to 3000 psi. CSL has decided to take the prudent step to test and verify the operating parameters of the Rough wells. It is anticipated that this limitation will last up to 6 months.
 Rough is an undersea gas storage facility, connected by pipeline to the terminal at Easington in Yorkshire:
Easington Langeled Terminal

It's able to store about 4 billion cubic metres of gas - or at least it was before the above announcement. Some more detail from Platts indicates that the reduction in operating pressure will reduce Rough's capacity by about a quarter. Because Rough comprises about 72% of the UK's total gas storage, this is equivalent to losing just under 20% from total storage capacity.

Now, Centrica Storage has said this is for six months, while tests are carried out, but Platts notes that the tests are needed because of concerns about well integrity - so it's possible that the capacity will be permanently reduced. Even if it isn't, the coming six months are exactly when the storage is normally refilled, so if full capacity is restored at the end of the testing period, it may well be too late to completely fill the storage.

So, let's assume the UK goes into next winter with 1 billion cubic metres of gas less in storage than usual - what might the impact be? 2013/14 was a mild winter, and Rough still had over 1.5 billion cubic metres left in it in March 2014. It was a different matter in April 2013, when it had actually gone below 'zero', eating into the gas cushion that was supposed to be left untouched. This year, there's about 0.5 billion cubic meters left in it right now - the situation was similar every year from 2008-2011 inclusive. This means that if the coming winter is mild, we should have no problems; if it is average, then we will probably need to increase imports, which will bump up prices; if it is cold, then we could well have a problem.

The graph below shows the levels in Rough over the past few years in GWh (10 GWh is about the same as 1 million cubic metres), so you can see the situation for yourself. Any year where the level dropped below 10,000 GWh is a year when the announced capacity reduction might have been a problem:
UK long range gas storage

Let's hope and pray for a mild winter!

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Friday, 12 December 2014

What will the impact of falling oil prices be?

So, oil prices are falling again - down to close to $60, compared to over $100 just a few months ago. Good news for economies and motorists around the world? Or a sign of problems to come?

Prices last fell dramatically in 2008, dropping from $145 in July to $30 in December of that year. Of course, this was due to falling demand caused by a global financial crisis - brought on in part by the rising price of oil forcing homeowners to default on their sub-prime mortgages in order to keep buying ever more expensive food and gasoline. Since then, the oil price crept steadily back up again as economies recovered and expensive oil production was mothballed, clearing $100 in 2011 and staying around that level until the recent fall.

So what's happening this time? Well, two key factors are the risk of weakening demand in some parts of the world due to economic issues, and the increase in USA oil production through the fracking of shale oil. Possible falling demand combined with rising supply has reduced the price. Normally, OPEC would act at this point, reducing oil production to support prices. But this time Saudi Arabia has political motivations, as noted by the BBC recently, wanting to punish countries like Russia and Iran, who are being badly hurt by the falling oil price right now. Saudi Arabia is hurt too, but it has a much bigger financial cushion, so can survive for some time yet on lower prices.

So what will the impact be, beyond lower transport costs in the short term? Most of the new oil supply that has come from US fracking needs a high oil price to be profitable - higher than the price is right now (estimates vary from $65 to $80), so fracking companies will be wondering whether they should pause or halt production, and save the oil for a time when prices are higher and they can make a profit selling it. But the problem is they've borrowed money to get started, and that money has to be paid back no matter what the oil price is. Some people even think this might trigger a new financial crisis, as there is over $200 billion in 'junk bonds' in the energy sector. This isn't a USA-specific issue, Barclays is involved in an $850 million loan which may not be paid back in full.

Looking further ahead, when demand for oil picks up again, the shutdown of expensive oil production like fracking, and also tar sands, would mean that prices could jump up significantly, as it would take time to bring this production back online.

Tar sands in alberta 2008

Finally, there's another factor affecting future oil production - the risk of falling investment. Anybody who's grasped the climate change issue understands that if we want to keep global temperatures from rising too high we can't burn all the fossil fuel resources we know about, never mind resources we haven't found yet. But companies, and even whole countries, are valued by stock and bond markets according to the quantity of fossil fuel reserves they own or have a right to produce. If some of these reserves have to be left in the ground, then the shares of these companies and the national debt of certain countries could be over-valued right now - a 'carbon bubble'. In fact, The Bank of England is researching the risk of this right now, as reported by The Guardian:
The Bank of England is to conduct an enquiry into the risk of fossil fuel companies causing a major economic crash if future climate change rules render their coal, oil and gas assets worthless.

The concept of a “carbon bubble” has gained rapid recognition since 2013, and is being taken increasingly seriously by some major financial companies including Citi bank, HSBC and Moody’s, but the Bank’s enquiry is the most significant endorsement yet from a regulator.

The concern is that if the world’s government’s meet their agreed target of limiting global warming to 2C by cutting carbon emissions, then about two-thirds of proven coal, oil and gas reserves cannot be burned. With fossil fuel companies being among the largest in the world, sharp losses in their value could prompt a new economic crisis.

CarbonBubble ENG

The UK Energy Secretary, Ed Davey, has also been talking about this issue with regard to pension funds, as reported by The Telegraph:
"One has got to worry about the investments for pensioners.

If pension funds are investing in companies or banks that have on their balance sheets huge amounts of assets in fossil fuels, and those assets don’t give the return that people expect – because of changes in technology where low-carbon becomes cheaper or because of the world having to take action against carbon emissions – one has got to protect those pensioners and those investments."
 In summary, there are more than simple market forces at play in the oil price right now, and the consequences of any action, or inaction for that matter, will be far-reaching. Governments would do well to give some serious thought to two key problems - how to get off our addiction to oil (and fossil fuels in general), and how how do it without causing another financial crisis as the big fossil fuel companies are wound down.

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