Gas Bills 'Could Rise' Due To Low Reserves

Good to see that some people are aware of the issues the UK has with gas supply - Sky News in this case!

Gas prices could soar this winter if the national supply runs short during another cold snap, an energy expert has warned. Industry analyst Peter Hughes told Sky News that a "perfect storm" last March of extreme weather and the shutdown of two major pipelines caused prices to double. And that could happen again because the Government has refused to support the storage of more gas. "It foreshadows things to come," he said.

"The situation in terms of the risks will only get worse as North Sea production runs down and demand rises. That's the double whammy. And if you don't have more storage that translates into real vulnerability."

Britain currently stores enough gas for 13 days of supply. But Germany has reserves to last 69 days, in case there is a problem with the supply from countries such as Russia.

Even the gas storage that we DO have is not always working properly... News out today from Reuters says that withdrawals from Centrica's Rough storage site, the largest in the UK, will be limited for a few hours today and for four days from 21 Nov. More importantly perhaps, no gas can be injected back into for two weeks starting on 18 Nov. Presumably this is all down to maintenance work, but that really should have been completed earlier in the year... Let's hope we get a mild winter!

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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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DECC: UK imported more than half its energy in Q2 2013

The latest DECC Energy Trends was published today, and it's no surprise that the decline in indigenous energy production has continued. The killer statistic is:

In the second quarter of 2013 net import dependency rose to 51.4 per cent, up 9.6 percentage points from the second quarter of 2012.

The chart on page 10 tells the story:

Here's the reasons, all comparing Q2 2013 to Q2 2012...

Coal: Production was down 24.3% on a year ago, and the proportion of our coal that came from imports rose from 81.7% to 93%. These imports came mostly from Russia (nearly half of the total!), USA and Columbia.

Oil: Production was down 13.4% on a year ago, and the proportion of our oil and oil products that came from imports rose from 40.5% to 45.1%. On a related note, the closure of the Coryton refinery resulted in a 5.6% drop in production of fuels from oil.

Gas: Production was down 2.8% on a year ago, and the proportion of our gas that came from imports rose from 43.6% to 52.5%. These imports came mostly from Norway, Qatar and the Netherlands.

Electricity: Production from nuclear power fell 16.5% due to several outages, but wind and PV generation rose by 58.6% (due to increased capacity), and hydro generation rose by 29% (due to higher rainfall). We imported 4.4% of our electricity.

Renewables
The key points here are:

• Share of electricity supply up from 9.7% to 15.5%, due to increased capacity for wind and PV and increased rainfall to power hydro stations. There was also more generation from power stations converted to biomass, although co-firing with coal has reduced.
• There's now 1,918 MW of capacity on a feed-in-tariff, 127 MW of which joined during Q2 2013.
• Total renewable capacity in the UK was 19.5 GW, compared to 14.2 GW a year ago.

Large Combustion Plant Directive
There's a helpful table (page 72) that shows how many of the coal power stations that were running over winter 2012/13 won't be running this winter. It's for reasons like this that Ed Miliband's promise to freeze energy prices seems a bit foolhardy.

The status of the plants that opted out is given in another table:

This shows that there's 5,050 MW of coal plant that ran last winter and won't be running this winter, and another 2,268 MW of oil plant that has shut - this didn't run much last winter, but when it did run it was urgently needed... On top of this there's another 1,730 MW of coal plant that is currently open but will close at some point during this winter. DECC also notes that:

From 1st January 2016 the remaining large combustion plants will be subject to more stringent emissions controls outlined in the Industrial Emissions Directive (IED). Plants that chose to opt-out of this directive will be limited to 17,500 hours between 2016 and 2023.

So there's more shutdowns to come!

Mike

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North Sea faces record fall in oil and gas production

According to a story in The Telegraph today, this year could see a record fall in oil and gas production for the UK:

North Sea oil and gas production could decline by as much as 22pc this year - the biggest annual slump on record – as maintenance on ageing infrastructure hits operations, the industry body has warned. Oil & Gas UK said it now expected average output to fall to between 1.2m and 1.4m barrels of oil and gas per day (boepd) this year, down from 1.54m boepd in 2012.
Full story

The decline has been in the region of 10% a year for some time now anyway, but some major technical issues in the past year have pushed production down faster than has been typical. In some ways this isn't all bad - it means that oil and gas is still there to use later on, when prices are higher. But there's always the risk that it's not worth repairing failing machinery if there's not much left to be extracted from a particular field, leaving it locked underground for good. (Of course, from a climate change point of view that's a good thing!)

This trend doesn't fully show up in the latest DECC Energy Trends, as it only covered up to Q1 2013, but even then oil production was down 15% from a year ago, and gas down 14.5%. It'll be interesting to see what's in the September edition...

On a slightly more positive note, it seems that more attention is being paid to thorium as a nuclear fuel. Obviously nuclear energy of any sort has numerous downsides, but thorium does seem to be be 'less bad' than uranium in several ways, so it'll be interesting to watch for more developments...

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Peak oil lives, but will kill the economy

Interesting story in the Guardian this week, noting that the BBC had lined up a row of 'experts' to tell us that there's no need to worry about the future of oil supplies. The point they seem to have missed is that the cheap oil is declining fast, and the gap is being filled by expensive oil, and that this expensive oil also takes more energy to get it out of the ground and turned into usable fuel.

"Global production of crude oil and condensates... has essentially remained on a plateau of about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Even more important, the global net oil exports from oil-exporting countries (oil production minus internal consumption) have peaked and are in decline."
...
The Eos paper goes on to point out that while "total oil production has plateaued, production of oil from older existing fields has been in decline, dropping roughly 5% annually, corresponding to a loss of 3-4 mb/d." Although production from unconventional oil and gas has balanced this decline, they are "difficult and expensive" with "very low energy return on investment (EROI)." In simpler terms, "it takes energy to get energy, and more is required to produce energy from unconventional sources."

The outcome is of course that oil will cost more, and that limits economic growth.

The result is an undulating production plateau correlating with higher but more volatile oil prices, as well as a prolonged recession punctuated by small cycles of 'recovery' and contraction.

Hmmm, 'prolonged recession punctuated by small cycles of 'recovery' and contraction.' - sound familiar to anyone?

You can read the full article here.

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Interview with Kjell Aleklett, one of the Peak Oil 'founding fathers'

An interesting interview with Kjell was published a couple of days ago, where he sets out the story so far on Peak Oil. Good to hear it from one of the pair who coined the term originally. A few quotes:

How have attitudes shifted since you first made your predictions?
Attitudes have changed considerably. Traditionally, economists have stated that if the price of a commodity is high, you should be able to produce more of it. However, this doesn’t necessarily hold true for a finite resource. Previous IEA and EIA estimates suggested that by 2030, oil production would have reached 120 million barrels per day. They have since revised their estimates to 95 million barrels per day: a reduction of 25 million barrels per day.

...

Do you think that sufficient measures are being taken by policymakers to plan for our transition to the second half of the age of oil?
No. It is clear that in this respect, we have a big problem. It is very difficult for any politician to admit that something is wrong, and that we might need to do something about it. If they were to do this, another politician would come along and say, ‘There’s no problem; vote for me and we can carry on as we are’.

This is the democratic dilemma. Drastic action is necessary, but it is very difficult to achieve. Education will be crucial if we are to succeed in implementing the required measures. Alternatively, it might take a crisis to precipitate change.

This last point is key - how can a politician get elected by telling people that they must consume less and pay more for it? Or is a crisis the only option?

You can read the full interview at Science Omega.

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UK gas supply and prices for winter 2013/14

Yeah, yeah, I know summer's not even started yet, but the UK gas markets are already planning ahead to next winter. Time to take a first look at how things are shaping up...

As you will remember, winter dragged on a bit this year in the UK, and it was only seven weeks ago that our gas supplies were running on empty. As I noted at the time, this leaves us with a problem, as there is now not enough time to easily refill the long range gas storage before next winter, as there are technical limits to how fast gas can be injected back into the store at Rough.

To illustrate the problem here's a graph showing long range gas stock levels for the past few years (click for a larger version):

As you can see, we are starting from an all-time low and are several weeks behind the next worst case (which was 2010). Here's another graph showing the rate at which gas has been injected into Rough since the cold weather stopped:

Centrica have actually been making a good effort to get gas in there as fast as possible, actually setting a new record on 1 May, but there have still been some blips due to cold weather or other issues that have slowed things down.

So how has this been affecting price? The exceptionally low storage level following last winter represents itself as extra demand in the gas market between now and next winter, so it's no surprise that average wholesale prices are up 23% for the year to date compared to 2012:

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.

So what can you do? Well, the message hasn't changed - insulate and draught-proof your house, upgrade your heating controls and thermostats, get a new boiler if you need to. Switching supplier will make little difference, especially in the long run, so the only answer is to use less gas.

I'll post more updates over the summer when I see how things are going in preparation for the coming winter.

Mike

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