Tuesday, 19 March 2013

What does the future hold for UK gas supply?

The gas crunch in the UK continues, with the current cold weather pushing demand up and very low storage continuing to be a concern. An article yesterday in the FT explains the situation very well (note, you can go via Google to avoid the paywall):

When a power cut at the Nyhamna gas processing plant in Norway hit production this month, prices in the UK soared 50 per cent in one day. The plant feeds the 1,200km Langeled pipeline that exports gas from the vast Ormen Lange field to Britain.

The loss in output was shortlived but for many in the UK it was indicative of a more worrying trend: an increasing exposure to new supply risks as North Sea production declines and competition for imports of liquefied natural gas increases.

Coming at a time when ageing coal-fired plants are being retired and new nuclear power faces delays, it raises questions over energy security, as the industry undergoes its biggest changes since privatisation in the 1980s. Alistair Buchanan, chief executive of Ofgem, the electricity regulator, warned of higher energy bills last month ahead of a “horrendous” gas supply crunch.
These are all issues I've written about recently on this blog, here and here. Just to summarise, these are the key problems that affect the UK at present or in the near future:
  • Gas production from our own fields is falling, often by around 10% a year.
  • Gas supplies from Norway (18-22% of UK winter demand) are subject to interruption, such as the storm-induced power cut mentioned above, and a technical problem in 2010.
  • Gas supplies from Europe by pipeline are subject to political problems, such as past disputes between Russia and Ukraine. They can also be affected by cold weather in Europe increasing demand there.
  • LNG imports have fallen dramatically since Fukushima, as Japan is outbidding the UK for gas.
  • Several of the UK's coal power stations will shut down for good in twelve days, with more to follow in the coming year. Some of our nuclear plants are also nearing the end of their lives.
The situation right now is that UK gas storage is at its lowest level for this time of year since 2010, and we may yet go lower than that, setting a new record. The difference is that our own gas production now is 37% lower now than it was then, comparing Q3 2012 with Q3 2010.

So while we may scrape though the tail end of this winter without any major panics on gas supply (though it's not over till the fat lady sings...), the low level of storage and limitations on supply mean that we are going to have to pay for a lot more gas imports over the coming months to refill the stores ready for next winter. So, we are virtually guaranteed to see higher domestic gas prices this year, and because about a third of our electricity is generated from burning gas, we will see prices rise there too, especially due to the shift of generation from coal to gas that will happen shortly.

If you've not already insulated and draught-proofed your home, now might be a good time to start...


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