Charles Hendry told delegates at the Conservative party conference today that the government must intervene to help drive forward investment in gas storage facilities and maintain the UK’s security of supply.
The UK’s current capacity is dwarfed by larger facilities on the continent leaving the market exposed to price risk by relying on imports of LNG and pipeline gas as domestic North Sea reserves continue to dwindle.
However, falling gas prices coupled with a low seasonal spread between summer and winter gas prices mean that securing investment for large storage projects has been slow to come forward.
“I’m persuaded we need to put a legal obligation on the companies that supply gas they need to keep a certain amount in storage. That will drive forward investment in the new facilities which I think will be a central part of our security of supply,” Hendry said.
Also at the conservative conference EUA chief executive Mike Foster said the need to tackle the problem of gas storage investment is one which he had raised with the previous coalition government.
“The argument was that it should be left to the market and the market has not delivered so there has to be some form of intervention, whether it’s a legal obligation or cap and floor assurance mechanism but there is a need for gas storage,” he said.
In August this year Gas Forum chief executive David Cox told Utility Week that new gas storage projects will remain “dead in the water” unless developers can convince the government to subsidise them.
Hendry added: “We need to change some of our strategies. France has 100 days , Germany has 120 – we have 13 to 14 days.”
“This is not something we can leave to chance. In four of the last nine winters it’s been too close for comfort and for reasons outside of Government’s ability to control them,” Hendry said.
Most recently the UK fell victim to dramatic price spike towards the end of winter 2012/13 when the country’s main gas storage facility Rough was all but depleted, forcing short-term gas prices to rocket to near-record levels multiple times in March 2013.