Concerns have been raised over the security of the UK’s gas supplies after National Grid issued a warning over a potential shortage.
Prices have skyrocketed over the last several days due to cold weather and supply outages.
In the early hours of yesterday morning (1 March), National Grid released a “gas deficit warning”, urging traders to buy in more gas. Its initial forecast for the day showed a shortfall of around 38 million cubic metres (mcm).
In the wake of the announcement, the within-day national balancing point (NBP) price for brokered trades shot up to 200p/therm. Having hit a 12-year high of 190p/therm the day before, the price peaked at 350p/therm on Thursday afternoon.
According to EnAppSys commercial director Oliver Burdett, the price on exchanges at one point reached 535p/therm – a level which “hasn’t been seen since the turn of century.”
The gap was eventually filled, with the volume of gas stored within the gas network – called the linepack – unchanged by the end of Thursday at 340mcm. However, the gas deficit warning remained in place overnight and was only removed this morning.
Giving an update on the situation, National Grid said in a statement: “The ‘gas deficit warning’ issued yesterday was withdrawn at 4.45am this morning and we are currently not expecting to issue another today.
“The market has continued to respond over the last 24 hours and we have seen an increase of supplies into the network.”
The immediate cause of the price spikes was a huge surge in demand, as customers turned up boilers to keep their homes warm in the freezing temperatures.
Supplies struggled to keep up following a series of unplanned outages affecting the Kollsnes gas processing plant in Norway and the BBL interconnector running to the Netherlands, as well as the North Morecambe, Bacton and South Hook gas terminals.
However, the turbulence has also exposed the vulnerability of the gas market to shocks following to the closure of Rough – Britain’s only long-range gas storage facility. Centrica had ended injections into the depleted gas field and since mid-January has been withdrawing the remaining “cushion” stock. The facility also suffered an outage yesterday.
“At its peak, Rough could hold up to 3,700mcm of gas, so its removal from the market has a significant impact,” warned Burdett. He said the UK has been left “at the mercy of any prolonged cold periods.”
Michael Bradshaw, professor of global energy at Warwick Business School, said: “Even before then, the UK was short on storage, with capacity equivalent to 5.9 per cent of total consumption in 2016, compared to places like Germany, France and Italy where it covers 20 per cent of demand.
“With Rough gone, the UK is left with 1,400mcm of medium range storage – equivalent to 1.8 per cent of 2016 consumption, which fills and empties many times during the winter. However, in an emergency such as this it is quickly emptied and won’t refill while prices are high.”
In the past, the UK has also relied on North Sea gas production, which could be ramped up to fill shortages.
With output dwindling, Bradshaw said the country has become dependent on imports from Europe via interconnectors and from the rest of the world in the form of liquefied natural gas (LNG): “What gas comes from where depends on the market price – in the UK, Europe and globally – and the willingness of those that own the gas to sell it.
He continued: “Until recently the government did not seem phased by the closure of Rough, despite industry calls back in November to review the situation. Reportedly, they are now thinking again.”
Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, said: “Allowing Centrica to close the UK’s only big long-term gas store without consideration for supply during cold snaps, failing to develop a coherent plan for low-carbon heating, and above all a head-in-the-sand approach to improving energy efficiency in homes have all put households and businesses at risk of shortages and price spikes.
“The UK is largely isolated in its dependency on gas, with a huge over-reliance in the power and heating sectors. Experts have long warned about putting too many eggs in the same basket.”
He said the government should take action to address “Britain’s cold, energy-wasteful housing stock – because doing nothing clearly isn’t an option.”
UK Onshore Oil and Gas took the opportunity to tout the benefits of fracking. Chief executive Ken Cronin said: “The UK is worryingly dependent on gas imports and this is forecast to increase to 80 per cent by 2035.
“Given that nearly 50 per cent of our electricity is produced by gas and 84 per cent of our homes are heated with it, the need to ensure we have our own homegrown source of gas rather than pursuing this continued over-reliance on imports… We believe that the right way forward is to produce British natural gas from shale onshore and we are working hard to achieve this goal.”
Responding to the concerns, a spokeswoman for the Department for Business, Energy and Industrial Strategy (BEIS) said: “As part of our ongoing dialogue with the industry, representatives from across the gas industry will meet at the department later this month to discuss BEIS’s assessment of our national gas security of supply.
“Gas storage will no doubt form part of that discussion, but ultimately, decisions on investment in gas storage are made by the market.”