The UK’s gas supply is in a “precarious position” and investment in new storage capacity is needed to reduce the risk of supply shortage, according to a new report.
Analysis from consultancy Wood Mackenzie has called for government intervention to support the development of new gas storage facilities and prevent shortfalls that could lead to blackouts.
According to the report, ministerial support is essential as there appears to be a lack of interest from investors to build new gas storage plants in the UK, with new projects unlikely to take the final investment decision (FID) without some form of financial or regulatory incentive.
Failure to act could put the security of the UK’s energy supply at risk, particularly at times of peak winter demand, the report concludes.
“For new projects to go ahead it will require UK Government intervention, in the form of either financial and/or regulatory support,” said Graham Freedman, principal analyst for European gas at Wood Mackenzie.
“This may increase costs of delivery to end consumers, however it may also reduce the levels of volatility and price uncertainty in the wholesale market, which may result in lower average wholesale prices, which would be a benefit to consumers.”
The report identifies the closure of Centrica’s Rough gas storage facility as a key driver for the UK’s reliance on flexible gas supply sources from Europe to support demand during periods of extreme weather conditions.
Rough was Britain’s largest gas storage site, accounting for around 70 per cent of the country’s total storage capacity. Its closure has raised questions about the security of national gas supplies, considering the UK’s dwindling domestic production and increasing reliance on imports.
According to the report, the loss of Rough and the recent closure of the Hole House facility has left the UK with just 1.5 bcm of storage capacity to support a market of 78 bcm (2017), little more than two per cent coverage or seven days of average daily requirements.
Uncertainty over Brexit is also highlighted as a potential issue that could put further pressure on the UK’s gas supply. Despite this concern, a recent government report claimed that leaving the European Union will not undermine the security of the UK’s energy supply.
The Department of Business, Energy and Industrial Strategy (BEIS) insisted that Brexit is unlikely to have a major impact because Britain has a “resilient electricity and gas system with sufficient capacity to meet demand in all but the most unlikely circumstances”.
Despite these reassurances from government, fresh concerns were raised last month (31 October) when MPs were told that new large-scale gas storage facilities are unlikely to be built in the foreseeable future.
Roddy Monroe, chair of Gas Storage Operators Group, told the BEIS select committee that only “small scale” facilities are likely to be delivered.