Keeping the lights on? UK gas supplies and prices in winter 2013/14

With the UK weather turning colder over the last week, it's time to take a look at how our creaking gas and electricity infrastructure might cope this winter. I'll look at two areas - first, National Grid's Winter Outlook for 2013/14, and second, my own analysis of their data on UK gas storage.

Most of National Grid's Winter Outlook is dedicated to gas, as the supply/demand is affected much more than electricity by the availability of imports and how cold the weather is. The report indicates that there is, in theory, plenty of gas supply for even the coldest weather that the UK could experience. In practice, however, situations can arise where supplies are far from secure. For example, earlier this year an unseasonably cold March coincided with a brief outage in the Bacton Interconnector, resulting in gas storage levels dropping to record lows. LNG imports were low at the same time, due to demand from Japan and China - this has not changed since then. The situation is illustrated well by a graph from from page 13 of the Winter Outlook, where the 2012/13 line can be seen going off the cold end of scale in March:



This exposes the other flaw in our gas market - if it is cold in Europe at the same time as it is cold here, there's no guarantee that gas suppliers in France, Germany and elsewhere won't keep gas for local use due to obligations placed upon them. Alastair Buchanan, the former head of OFGEM who stepped down from his post in June after 10 years’ service, comments on this in an interview with The Telegraph, and goes on to say that uncertain gas supplies combine with ageing power stations in the UK to create a real risk of temporary blackouts if the weather is cold over the next few winters. Over 40% of the UK's electricity is generated by burning gas, so the two are closely linked. In the Winter Outlook, National Grid notes that the margin of spare electricity generating capacity this winter would only be 5% during a cold spell, compared to 17% just two years ago.

Moving on to the current state of our gas stores, here's some graphs I've plotted using data available from the National Grid website. First, here's the amount of gas in Long Range Storage, which is basically a single depleted gas field known as Rough, owned by Centrica. 2013 is in red on the graph.



As you can see, the main factor affecting the storage levels in Rough this winter is what happened last winter. The cold weather dragging on through March and April resulted in the storage level actually going below 'zero' (see my blog at the time for an explanation), so we've been playing catch-up all summer and the current level is lower for this date in October than any time since 2007 (when North Sea supplies were much greater than today...). There's little hope of the storage getting filled up to the higher levels seen in the past few years, partly due to physical limits to how fast gas can be pumped in and partly due to the rising cost as we go into winter. The rate at which Rough has been filled this year is shown in the graph below. Why they decided to take a break from filling it at some points is beyond me...



You'd think that someone would be building more storage space for gas, but a recent story in The Telegraph noted that:

Centrica has written off £240m in wasted costs after scrapping its £1.4bn plan to convert an empty North Sea gas field into a gas storage site, and shelving another smaller project indefinitely.

The situation with Medium Range Storage is not so bad, though this doesn't fully compensate for the current shortfall at Rough:



Short Range Storage is very low, but the amounts required to fill it up are relatively small. It does still need doing though, as these stores are critical to cover unexpected outages, which seem to occur regularly enough that the may as well be expected these days...



Of course, the question that most people will be asking is 'What will happen to prices?' Well, I said in a post on this blog in May 2013:

This can only translate into higher bills eventually, although the bumper profits made last winter may result in a short delay before this happens. Boosted gas prices will feed through into electricity prices too.

Lo and behold, one of the 'big six' have already put up their prices, and I'm sure the others will follow suit. I know they blame 'green taxes' and transportation costs, while the government blames fat profits in the upstream sections of the energy companies, and there is a little truth in all these claims, but the simple fact is that in the year ending 30 June 2013 we imported over 50% of our gas (data from DECC). This means that we are at the mercy of European and global demand and weather. The graph I've plotted below shows spot market prices as reported by National Grid over the past few years. The trend is clear, and the average price this year so far is currently up 18% on the year before, in part due to the very low storage levels at the start of the summer.




I will of course be keeping an eye on gas storage levels, and the weather forecast, over the coming 4-5 months, and don't forget you can check the current gas situation yourself at National Grid's Prevailing View page.

If you're wondering what else you can do, at the risk of repeating myself, you can:

• Reduce demand (wear warmer clothes, turn the thermostat down, don't boil a saucepan without a lid on it, etc.)
• Improve efficiency (insulate your house, draughtproof, double-glaze, etc.)
• Use renewable energy

There's some examples of what we've done at home for the above points here, and you can check out some inspiring ideas on the Ashden website too.

Keep warm, and pray that we don't get too many days that look like this in the coming winter...



Mike

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Update on UK gas prices - going up again soon

In a post a couple of weeks ago I highlighted some issues with UK gas supply that were pointing to likely further price increases. Well, now the news is out:

The owner of British Gas, Centrica, has warned that customers may face higher energy bills.

Centrica said "end-user prices" did not reflect the price it was paying for gas on the wholesale market.

...

"In the UK, the forward wholesale prices of gas and power for delivery in winter 2011/12 are currently around 25% higher than prices last winter, with end-user prices yet to reflect this higher wholesale market price environment," the statement said. Full story

So there you go, more expensive gas, coming soon to a meter near you. If that concerns you, take a look at some pages on my other blog for ideas to cut your bills:

• Installing the wood stove
• Plumbing and testing the wood stove
• Installing solar water heating
• Insulating the cavity walls
• Insulating the loft

Mike

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Update on UK gas supplies/prices - Libya and Japan effects

Just a very quick note here to update the earlier post I did about UK gas supply in the 2011/12 winter. A story on Bloomberg about daily price movements in the UK gas markets noted that:

Goldman Sachs Group Inc. said in a report yesterday that the continuing 30 million cubic meters a day of missing supply from Libya and an increase of 18 million cubic meters a day in liquefied natural gas demand from Japan following the earthquake on March 11 "have the potential to eliminate the supply overhang in the global LNG market, bringing it to balance." full story

This puts some numbers on the issues I brought up in the earlier post, and makes it clear that UK gas prices are going to be staying high for some time...

Mike

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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).

Mike

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