Britain faces gas supply crisis as storage runs dry

LONDON Thu Mar 21, 2013 4:17pm GMT

A gas cooker is seen in Boroughbridge, northern England November 13, 2012. REUTERS/Nigel Roddis

A gas cooker is seen in Boroughbridge, northern England November 13, 2012.

Credit: Reuters/Nigel Roddis

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LONDON (Reuters) - Britain is grappling with a potential gas supply crisis as a late blast of winter depletes stored reserves, coal power plants close and pending maintenance in Norway threatens to further squeeze supply.

The country risks running out of stored gas by April 8 based on the fall in its reserves seen since the cold hit at the beginning of March, Reuters calculations show. (see chart)

Gas storage sites have been depleted by 90 percent, with the equivalent of less than two days' consumption remaining, data from Gas Infrastructure Europe shows.

If the cold persists, as is forecast, the UK may need to cut gas supplies to some big industrial customers, as it did in 2010 at a time of severe gas shortages.

The Department of Energy and Climate Change (DECC) said it was monitoring the situation closely.

"Our market has spare import capacity built in. However, we take gas security and the risk of harmful price spikes seriously and monitor price and supply developments working closely with National Grid," said Emily Towers, DECC's spokeswoman responsible for energy supply and emergency planning.

"We are working with (the regulator) Ofgem to review our market arrangements ...At the same time, we are diversifying our energy mix to reduce our dependence on imported fossil fuels and putting in place policies to cut energy demand."

The rapid depletion of gas storage sites has prompted operator Centrica, Britain's biggest power and gas provider, to restrict withdrawals owing to falling reservoir pressure, in a sign of the growing strain on the system.

NORWAY MAINTENANCE

Centrica took action this week, restricting withdrawals from its Rough storage site, Britain's largest, to 37 million cubic metres per day (mcm) from 42 mcm.

Traders expect further withdrawal restrictions over the coming days but said this may not be sufficient to stop the depletion if the cold persists.

Supplier Norway expects to idle around 40 mcm of its offshore gas infrastructure for maintenance from April 1, piling further pressure on Britain's gas market.

A core problem is that Britain has far less gas storage capacity than its peers - 15 days' worth of demand when full versus more than 100 days' worth in France and Germany.

"The lack of incentives for storage investment appears indicative of the UK's wider gas sector, where investors currently see regulatory risk as an insurmountable hurdle," said Roderick Bruce, analyst at IHS Global Insight.

UK PLANTS CLOSING

There has also been a shortage in investment in power generation, and ageing British coal plants that have exhausted their operating lives are being closed, further constraining energy supply.

Scottish Power's 1,200 megawatt (MW) Cockenzie power station near Edinburgh stopped operating after 45 years of service this month.

The British subsidiary of Germany's RWE will shut its 2,000-MW Didcot facility for good this month as well.

There is also little relief seen in the weather forecast, with temperatures to remain below seasonal norms until at least mid-April, weather analysts at Thomson Reuters Point Carbon said. (see chart)

Britain's Met Office has warned of "cold or very cold" weather into next week, while northern Britain "may possibly experience colder than average conditions during April with a risk of overnight frosts and perhaps further snowfall".

PRICE SPIKES

Wholesale gas prices in Britain have spiked to near-record highs in March as traders fear supply disruptions.

"We are already importing at record levels from Norway and continental Europe, and there is not a lot of LNG that could fill the gap in the short-term," one UK-based gas trader said.

While the high gas prices could attract additional shipments of liquefied natural gas (LNG), ships from Qatar, the world's top LNG exporter, take around two weeks to reach Britain.

Two LNG tankers are scheduled to arrive in Britain by the end of the month, but traders said more would be needed.

"We need more gas, it's that simple, but any Qatari supplies sent now would come too late to address the current shortage," another gas trader said. "The only hope is to receive re-exports from somewhere in Europe where gas demand is not currently so high."

Spanish and Italian LNG terminals have previously re-exported LNG cargoes, but temperatures in Spain and Italy are unusually low there, too.

(Additional reporting by Oleg Vukmanovic; editing by Jason Neely)

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Comments (2)
Cynicalsam wrote:
The DECC policy and decision making are obviously based on Global Warming Science of Tony Blair’s era, which like everything else from that time is less than true. How can the UK be in such a position of having no fuel supplies? Heads must roll.

Mar 21, 2013 4:34pm GMT  --  Report as abuse
FarmerGiles wrote:
Bring on that Shale Gas

Mar 21, 2013 9:43pm GMT  --  Report as abuse
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