December 2, 2009 / 11:17 AM / 10 years ago

RPT-Gas sidelining coal in UK power generation-Centrica

(Repeats to fix link to analysis in para 8)

BARCELONA, Dec 2 (Reuters) - Centrica (CNA.L) is running all its gas fired power plants at full capacity this winter to lap up a deluge of cheap gas in Britain amid a slump in global demand, an executive from Britain’s biggest gas-fired power generator said on Wednesday.

Coal has in the past been favoured by power generators in Britain for round-the-clock power generation in winter because gas prices normally rise markedly as heating demand surges in the residential sector.

But two new LNG import terminals that opened in Wales earlier this year, along with an older facility near London that Centrica has import capacity at, have seen some 87 LNG cargoes delivered in 2009 as producers unload their fuel in one of the world’s few accessible markets, driving down UK spot prices to around half where they were last December.

“As gas prices have fallen we have switched all our gas fired power plants on, which we weren’t expecting to do this time last year or certainly two years ago, which is one of the methods we have of dealing with all the LNG that arrives in the UK,” Simon Bonini, director of LNG at Britain’s biggest residential gas supplier told the CWC World LNG Summit in Barcelona.

“Instead of coal being the baseload supplier of power in the UK it’s actually gas right now.”

Gas demand surges in winter because it is used to heat two thirds of Britain’s homes. This usually makes it relatively expensive for the next biggest users of gas, power generators, who typically switch to burning coal before switching back to gas generation during spring when gas is cheaper.

Centrica does not have any coal fired power plants, so usually only supplies power from its gas plants when prices are high at peak times to day in winter, but Bonini told Reuters Britain’s biggest residential gas supplier said the company may continue to run its plants flat out around the clock all winter.

Reuters predicted in an analysis in July that weak gas prices and sagging demand could see gas supply most of Britain’s electricity well into winter, sidelining coal plants and cutting Britain’s carbon emissions as a welcome side effect. [ID:nLL050203]

European demand for gas is expected to fall by about 10 percent in 2009. The United States has largely lost interest in imported LNG because of falling costs for its own production, leaving LNG suppliers that have invested billions in new facilities aimed at supplying North America scrambling for a market to sell it in.

“We see the UK as the destination of choice,” Bonini said.

Continental European buyers already struggling to take delivery of all the gas they are obliged to take from big pipeline suppliers like Russia on long-term oil, linked contracts have been less able to take advantage of the plentiful supply of super-cooled gas on the world market than Britain, the biggest and most liquid spot market outside the United States.

Reporting by Daniel Fineren; +44 207 542 3083; Reuters Messaging:

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