Panic over UK gas supplies is unnecessary
The panic over dwindling fuel supplies and possible rationing is just that. The lights are going to stay on for a long time yet
This week, the UK media was full of warnings that the country was running out of gas; that supplies were dwindling; that gas storage levels were dangerously low; even that the country faced gas rationing.
This article claimed that with gas storage levels hovering at 10%, compared with 50% at the same time last year, UK energy security was at risk.
Is all of this true? Well, yes and no. Cold weather boosts gas demand. That's a fact. But is the UK about to run out of gas? No. A lot of the panic in the press was just that. A quick look at the facts, and a bit of data crunching, shows that the country wasn’t facing a gas crisis at all.
Low natural gas stocks have more to do with the UK government’s lack of investment in storage facilities than issues with availability. The UK only has gas storage capacity for 15 days of supply because of its historical legacy as a North Sea gas producer.
However, the UK has been a net gas importer since 2004, due to a combination of declining domestic production and a steady rise in domestic demand. This does introduce a degree of vulnerability into the country’s energy security, but it is not a major concern. The UK is in no danger of seeing its supplies turned off, unlike Ukraine during the “gas wars” of 2006 and 2009. (At that time, Ukraine met 100% of its gas demand with gas sourced from Russia.) To put this into perspective, in 2011, UK gas production was 45.2 billion cubic metres (cm), while consumption for the year was 80.2bn cm. Pipeline imports for 2011 totalled 28.1bn cm, with the remainder met by LNG imports. So, in 2011, domestic production met 56% of the UK's demand.
These days, UK gas demand is met by domestic production and imports from a number of sources: pipeline gas bought under long-term contract from Norway and the Netherlands and liquefied natural gas (LNG) from Qatar. When demand outstrips the gas in the system, utilities turn to the spot market to plug the gap. Some of the spot-market supply comes from Russia, and some from other gas producers. During previous cold snaps, the UK’s utilities have been able to source enough fuel to meet the extra demand created by keeping the heating on. Securing that extra gas often means paying a premium for it, but the important point is that the market meets the demands made of it.
But back to last week. Prices rose sharply because of a combination of cold weather – gas demand is seasonal, mirroring the weather; peaking in the first and fourth quarter each year – and a reduction in pipeline supply. The Interconnector, which carries gas from mainland Europe to the UK via Belgium, was shut in temporarily after a technical glitch. The shut-in saw UK natural gas prices for same-day delivery almost double to $22.80 per million British thermal units (Btu) on 22 March, according to data from the pricing agency Platts. But that was a temporary spike. For reference, 22.80/m Btu is the equivalent of 150 pence per therm (p/th) of sales gas. The within-day price for February averaged 69.19 p/th, according to Platts data. On 26 March, UK gas prices had dipped to 99p/th, according to Platts. While that's not a big drop, the country was still gripped by unseasonal cold weather at the time, and the price reflects this.
It’s true that soaring gas demand in Asia has tightened the European LNG market, forcing utilities to pay a premium to secure supplies. Cargoes have been diverted away from Europe as suppliers take advantage of the much higher prices they can command from Asian buyers. But there is no shortage of alternative supply: European customers can source readily available gas from Norway, Qatar and Russia on the spot market.
On 24 March, two days after fears of a UK gas crisis first surfaced, former energy minister John Hayes said in a statement that the country’s supply situation was stable as pipeline supplies from Belgium, the Netherlands and Norway continued to flow. Three cargoes of Qatari LNG are expected at the beginning of April, further bolstering the country’s gas supply.
Don’t worry. The likelihood of Britain shivering in the dark any time soon is remote.