Thursday, 21 April 2011

Winter 2011/12 gas supply in the UK

I know it's strange to be thinking about winter when it's April and over 20C, but there's some interesting bits of news out recently.

First, there's a story from Reuters, saying:

Gas for Monday fell ... but prices for next winter and beyond rose on expectations that Japan will gobble up more of the internationally traded fuel when Britain needs it most.

"Banks are buying the back, thinking winter will be tighter with LNG diverted to Japan," one European gas analyst at a utility said, adding that a German government meeting to discuss the future of nuclear power in Europe's largest economy was supporting UK gas price in the far future.
There's several factors at play here:
  1. The disaster in Japan means that they are importing a lot more LNG than they normally do, burning it to generate electricity. Given recent reports that it's going to take nine months to bring the Fukushima reactors to a cold shutdown, and the fact that the six reactors at that site are now offline for good, these elevated LNG imports are going to continue for some time to come.
  2. Although Germany doesn't have many gas fired power stations right now, they are pretty quick to build, and as it's going off nuclear in a big way, there could be some new demand coming over the next couple of years for gas.
  3. Libya used to export gas to Europe, via Italy. Clearly it isn't any more...
  4. High oil prices drag gas prices higher, due to links in the energy markets.
  5. According to statistics from DECC, UK gas production from the North Sea is falling at 8-9% a year.
Although problems tend not to arise until winter comes, it's interesting to note that wholesale gas prices (which you can look up here) in the past couple of weeks have been around 2p/kWh, compared to around 1.1p/kWh a year ago, so the above factors are clearly having an impact - expect more gas bill increases in the pipeline (pun fully intended ;-) ).

The other bit of news is that the National Grid published its 2011 Summer Outlook this week. Page eight starts a section on fuel prices, and says:
Recent developments in Japan, Libya and Australia show how volatile energy markets can be and how unforeseen events can impact energy prices on a global basis. As the UK now imports more than half of its primary energy, notably through gas and oil, these events feed through to UK energy prices and can change the short term view.
Good to see that at least some people realise that a tsunami in Japan, a civil war in Libya and floods (affecting coal mines) in Australia all have an impact on what we pay for energy here... Their Figure F1 shows what's happened to prices of electricity, coal, oil, gas and carbon over the past year, though I find the future predictions a tad optimistic:

Looking at the relative increases of gas and coal, it's not surprising that more coal is now being burned for electricity generation, especially as the carbon price hasn't increased over the period.

But finally, to come back to the main point of this post, page 17 of the National Grid's outlook report has an interesting graph showing where our gas comes from:
UKCS means UK Continental Shelf, i.e. the gas that comes from the North Sea and other offshore areas. As you can see, it's only going one way - there was a blimp from 2009-10, but that's because 2008-9 was a record drop, as DECC itself acknowledges.

So what can you do about it? Well, you can insulate your walls and loft, install solar water heating and look for non-gas forms of space heating (links are all to what we've done to our own house).


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