” Britain is on the brink of running out of gas”, announced the front page of Friday’s Times, after gas storage levels hit low levels – and over the weekend the paper reported that a tanker carrying gas from Qatar has been rerouted to top up the country’s supplies.
But the National Grid says that gas supplies are “normal for this time of year”. So does the UK’s limited gas storage mean we’re facing gas shortages, or is it more likely to mean higher prices?
The UK is bottom of the gas storage league table
Gas storage lets companies manage seasonal demand fluctuations. They buy gas and store it in the summer, when it’s cheap, and sell it in the winter when demand and prices are higher. Gas is stored in above-ground tanks and underground – in depleted oil and gas fields, water aquifers and salt caverns
According to energy regulator Ofgem, the UK has less gas storage relative to its consumption than any other major European economy. The UK has the capacity to store the equivalent of four per cent of the country’s annual consumption – about fourteen days’ supply.
Compare this with other countries in Europe, and you’ll see that we languish at the bottom of the gas storage league, alongside the Belgians:
Source: British Geological Survey response Energy and Climate Change Committee inquiry into energy security, 2011
This is because up until now, we haven’t needed much storage. Over the last two decades the UK has had easy access to North Sea gas, providing lots of flexibility in gas supply.
The problem is, supplies of gas from the North Sea are steadily declining, as this graph from Ofgem’s security of supply report shows:
Where the UK has been getting its gas from over the last decade? ‘UKCS’ stands for ‘UK Continental Shelf’, or the North Sea. Source: National Grid ten year statement, cited in Ofgem’s security of supply report 2012.
Right now, the amount of gas in storage is at a particularly low level. We’re at the end of winter, the weather has been unseasonably cold, and consumers have been using a lot of gas to heat their homes. According to the Times on Friday, storage facilities are “only 10 per cent full”, compared to 49 per cent this time last year.
Situation normal says National Grid
So should we be worried? We turned to those who take responsibility for managing gas supply – National Grid and the government.
A spokesperson for National Grid told us on Friday that gas storage “isn’t unusually low for this time of year – it is at the level we would expect”. It is usual for gas storage to reach low levels at the end of the winter, they said.
DECC said in a statement – “the UK gas market is functioning well and our gas needs are continuing to be met”, adding:
“We get our supplies from a diverse range of sources and the market is proving to be highly responsive to the UK’s needs.”
In other words, both DECC and National Grid argue that the market is responding as it is designed to do. Gas prices rise in response to scarcity, energy companies buy in more gas, and the country’s energy supply is maintained.
Other sources of gas available
DECC argues that is it “misleading” to frame a debate about security of gas supply around the number of days’ gas storage left in the system, because the UK can and does source gas from other places.
More detail is given in DECC’s annual security of supply report, which says:
“Describing the UK’s storage capacity in terms of the number of days of demand that it could meet is not meaningful, as in reality, gas from storage is not the only source that is used to meet demand.”
Other sources of gas include North Sea production, pipelines from Norway and the EU, and shipments of Liquefied Natural gas. National Grid told us that while supplies of gas from the North Sea have declined over the last decade, other sources of gas have increased. Over the last decade National Grid has also build two interconnectors to the continent, allowing more gas to be imported, and imports of LNG have “grown substantially” in the last few years according to DECC.
This makes the UK more exposed to the international gas markets, but both DECC and National Grid argue that there is no threat to security of supply.
Gas dependency = vulnerable to price increases
In other words, gas will generally be available – but at a price. The argument that we can always buy gas from the world market won’t reassure those who argue that a lack of gas storage is likely to push up energy prices. This was illustrated in dramatic fashion when one of Britain’s gas import pipelines temporarily closed on Friday, and the wholesale price of gas hit a record high.
The UK is heavily dependent on gas imports, and so vulnerable to gas price fluctuations. Gas accounted for 43 per cent of the country’s total energy consumption in 2010, compared to just 15 per cent for coal. Whereas n 2000, the country sourced its gas almost entirely from the North Sea, now, more than half of the gas burned in the UK comes from Norway, the Continent and internationally traded LNG.
The squeeze on the UK’s gas supplies and prospect that the UK may have to import more and more expensive gas prompted the Sunday Telegraph to argue yesterday that the UK should abandon its climate change targets in order to produce more gas – shale gas – domestically.
But indigenous shale gas won’t make any difference to the current situation, and probably couldn’t unless we’d been developing it for ten years or more. The general opinion is that the UK is unlikely to see a functioning shale gas industry for another decade or so, and even then it may not bring down gas prices.
As the Financial Times notes:
“The public only notices its gas supply if it fails to arrive at the turn of a knob, and when the bill comes.”
It seems unlikely that limited storage capacity will leave people without gas. But if the UK continues to be dependent on gas imports, it may mean that when the bill comes, they sit up and take notice.
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