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UK need for more gas storage to grow from 2020

The UK will be vulnerable to import disruptions and high prices into the next decade, according to two reports published Monday and commissioned by the dominant UK gas supplier Centrica.

Eclipse Energy says that without new seasonal storage capacity — which means very large plants — the UK gas price will be prone to rise sharply in the years after 2020, because of the compounding effects of less production in the UK and Norway and more import reliance; the limited extent of long-term supply commitments; relatively low storage capacity; and the very liquid spot market, the National Balancing Point, which allows other countries to balance their portfolios.

“With decreasing supply security and reducing influence on UK prices, seasonal storage will become an important insurance for the UK against daily or monthly price volatility,” says Robert Minsaas, the MD of Eclipse Energy.

The report focuses on 2020-26, and “makes absolutely clear that as the UK becomes increasingly reliant on imported gas by pipeline and LNG, it will be events outside the UK borders that will set domestic UK gas prices,” Minsaas says.

The other report, by Frontier Economics, addresses what Great Britain’s energy regulator, Ofgem, is considering doing to strengthen security of gas supply and is intended to “help inform the decision by the Department of Energy and Climate Change on what form of intervention is likely to be most effective in helping secure medium to long-term gas supplies.”

The report lists a range of interventions, from the very light and cheap to implement, such as suppliers informing regulatory authorities on their supply and demand positions; interruptible contracts — phased out on October 1 by new exit capacity reforms — to the more stringent, such as obliging market participants to show that customers’ demand may be met under certain conditions.

This could include a gas storage intervention, that would trigger the development of new gas storage. “Any storage specific intervention would have a lead time of several years in terms of an investment response by the market,” says the report.

Even more extreme would be strategic storage, which would only be used when no other market-based options existed for meeting gas demand. The storage might be procured by a central tender and be remunerated on a regulated revenue basis.

A number of storage projects in the UK await improved regulatory or market conditions: these include the Gateway project in the Irish Sea; the depleted Deborah field, in the southern basin; and the onshore Saltfleetby project.

The price difference between the summer injection season and the winter withdrawal season has been shrinking to the point where no new investments are being made in seasonal storage, although much smaller and cheaper fast-cycling storage facilities have been brought on stream.

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