Trade bodies call for urgent inquiry into gas security

Government accused of downplaying risks of increasing dependence on imports

Trade bodies and unions have urged the government to launch an inquiry into the “growing risks” to gas security following the announced closure of the Rough gas storage facility.

In a letter to business and energy secretary Greg Clark, they described Britain’s increasing reliance on imports as an “urgent and serious threat” to economic growth and employment.

The signatories, which include senior figures from the British Chambers of Commerce, the Energy and Utilities Alliance, GMB and Unite expressed fears that the government is “ignoring the energy price implications of the UK’s rising dependency on imported gas, forecast to reach up to 80 per cent of total gas demand by 2030”.

“The rising level of exposure to the vagaries of the international gas market, combined with an inadequate level of UK gas storage, will increase both the likelihood and impact of short term demand-supply imbalances on both gas and electricity price volatility, to the detriment of all consumers," they caution.

“Following the announcement of the imminent closure of the Centrica Rough gas storage facility, the level of UK gas storage relative to demand has dropped dramatically at a time when the geo-political risks to imports have increased significantly.”

According to the letter, the closure of Rough will leave the UK with enough storage capacity to meet just five days of average winter demand. This amounts to less than two per cent of total annual demand, compared with an EU average of 25 per cent.

It acknowledges that the UK does benefit from a diverse range of source for imports and substantial import capacity but warns that this “does not guarantee that supplies will be forthcoming when required”.

The letter argues that suppliers and shippers of gas “face no, or little forward price exposure to expected tight supply conditions” and that the “incentives to balance do not adequately reflect the true cost of flexibility in the market”.

It says consumers will therefore be the ones to suffer from both long-term supply fears and short-term shocks.

The document notes the importance of secure gas supplies to major industrial users such as ceramics manufacturers, as well as the power sector, which already relies on gas-fired power stations for more than 40 per cent of electricity generation and will become increasingly dependent on them to replace closing coal plants and provide backup capacity for renewables.

It also highlights major geo-political risks to UK’s gas supplies, including the negotiations to leave the European Union.

“We do not know what will happen as a result of the Brexit negotiations, but unless the government can secure free access to European gas supplies, the UK may not be able to rely on this source of peak gas in the future," the letter adds.

It says, with a number of proposed storage projects being “cancelled, put on hold, or struggling to attain a final investment decision”, the UK’s low-level of storage looks unlikely to recover any time, adding that “some form of regulatory framework will be required to support new and existing capacity, as is common on the continent".

The signatories therefore call on the government to “mount a fresh inquiry into gas security, with particular reference to the adequacy of UK storage, gas price security and the possibility of taking some form of regulatory action to mitigate the impact of increased energy price volatility".

Earlier this week the Competition and Markets Authority made a provisional decision to release Centrica from historic commitments relating to the operation of Rough as part of the facility’s closure. 

Author: Tom Grimwood,
Channel: Policy & Regulation

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