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Potential crunch coming for UK gas supplies - Ofgem CEO

  • 03 May 2012, 15:22
  • Ros Donald

We're tweeting and blogging this year's Economist Energy Summit.

Why is the government focusing so much on gas? The Chancellor in his Budget speech earlier this year said gas is cheap, and DECC recently introduced new measures allowing existing gas plant to carry on emitting at current level for the next few decades. Is this a particularly good idea?

According to the CEO of the independent energy regulator Ofgem, Alistair Buchanan, the answer is no. But unless the current situation changes, he said today, a new push for gas is inevitable.

The government's current pursuit of a gas generation strategy is down to a combination of factors, Buchanan said at the Economist Energy Summit today. First and foremost, the need to meet carbon targets by cutting back on coal power is driving interest in natural gas, which is lower carbon, if not low-carbon.

Alternatives to coal like nuclear and offshore wind aren't coming on-stream as quickly enough to replace generating capacity - offshore wind, for example, isn't yet producing enough electricity, he said.

Changes in Europe are also meaning that gas is becoming more popular - demand for gas in Europe was already growing, and has risen by up to 150 billion cubic metres (bcm) due to the decision by Germany and others to eventually abandon nuclear power generation.

But on the supply side, things aren't looking great for the UK. The National Grid conducted a study in January 2011 - an unusually mild month - to see how the gas supply would react to shocks such as the closing of the Suez Canal or an international increase in demand for gas imports. If anything like that had happened during that very comfortable winter, consumers would have faced gas supply interruptions, Buchanan said.

And it could get worse, he argued. The UK can currently store about 4 bcms of gas - but we use around 100 bcms per year, and UK storage was at historic lows in January 2011.

Securing future supplies could also be difficult, he argued. Key gas fields expected to come online in Russia and neighbouring countries have been delayed, as have pipelines that could bring gas from the Arctic or middle Asia.

What about shale gas from the EU? Buchanan said that's not looking great either, due in no small part due to strict EU environmental regulations governing water and chemicals. There's also the small issue of public opinion and government will - there won't be any US-style tax breaks to support the US shale gas industry in the EU.

According to Buchanan's presentation, at the moment it looks like there's going to be a squeeze on gas demand between 2015 and 2020 while the world waits for new gas supply nations to come online. This is at exactly the same time as the UK demand for gas will be going up due to coal decommissioning and the leisurely pace of new technologies coming online, raising fears of a crunch in gas supplies.

The UK's largest three political parties agree the UK's energy mix should be low carbon renewables and nuclear, he argued. But whatever the ambitions, the slow pace of low carbon and nuclear development is leaving the focus on gas, almost by default.

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UPDATE: Here are the slides from Buchanan's talk. If you want them in PDF form, drop Ofgem a line.

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