Shock resistance
The conflict in the Middle East has once again shone a light on security of supply closer to home. Utility Week looks at what could be done to make the UK more resilient to international price shocks.
By David Blackman, policy correspondent
Shock resistant
The conflict in the Middle East has once again shone a light on security of supply closer to home. Utility Week looks at what could be done to make the UK more resilient to international price shocks.
By David Blackman, policy correspondent
Figures showing Great Britain only had two days’ worth of natural gas in storage last weekend have been used to illustrate the narrow margins that underpin the country’s energy security.
As international markets react to the ongoing conflict in the Middle East, statistics produced by National Gas showed that Great Britain had 6,999GWh of fossil gas stored, equating to under two days of reserves.
The gas transmission operator said it has no concerns about supply and that levels are normal for this time of year. National Gas was also quick to point out that storage makes up only a small part of Britain’s diverse gas supply mix, around three-quarter of which continues to come from the Norwegian and UK North Sea reserves with imports of LNG (liquid natural gas) and interconnectors with continental Europe largely making up the balance.
Nevertheless, the figures encapsulate growing concerns that the conflict could have a long-lasting impact on energy prices around the world.
The UK had two days' worth of gas storage last weekend
It was concerns of such an incident that prompted a recently concluded government consultation exercise on security of supply – the timing of which could not be more poignant, given the ongoing conflict in the Middle East has once again thrown energy markets into turmoil and led to questions about the UK’s energy resilience.
Michael Bradshaw, professor of global energy at Warwick University, expressed his frustration that the government is still consulting on security of supply rather than taking concrete steps to remedy the situation. He said the UK has not yet learned the lessons from the 2022 energy crisis, which was triggered by the last big jump in gas prices that followed Russia’s invasion of Ukraine. “There is a shock to the LNG market and a horrible sense of deja vu here for European consumers: we've seen this all before,” Bradshaw added.
The good news is that while Europe’s gas storage levels are currently low, the heating season is nearing its end and US production will be “ramping up and as quickly as it can to make the most of this opportunity”, Bradshaw added during an Energy and Climate Intelligence Unit webinar.
However, it would take at least two or three weeks for Qatar to get its currently closed Ras Laffan gas liquefaction facility, the largest in the world, back on stream. Europe will also have to refill its stores during the summer months when gas prices are likely to be higher than normal, he said: “Sellers know that European buyers have got to fill storage for next winter, it's a tight market and you've got buyers out competing one another for LNG cargos at the moment.”
Adam Bell, head of policy at consultancy Stonehaven is also concerned that any European gas supply crunch will stretch into next winter. He says: “With the American midterms, there will be such a temptation on Trump to reduce LNG exports. If this conflict in the Middle East is still going on, supplies are going to get very, very tight indeed.”
“There is a shock to the LNG market and a horrible sense of deja vu here for European consumers: we’ve seen this all before.”
Michael Bradshaw, professor of global energy, Warwick University
Qatar's largest LNG facility, Ras Laffan, is closed
Gas isn’t going away
Energy UK director of policy and advocacy Adam Berman agrees that crises are often very quickly forgotten about.
“Three years on from the energy crisis, we remain broadly as gas reliant today as we were back then. In terms of the actual physical security of supply, whether you like it or not, we use a lot of gas, and we're going to continue to use quite a bit of gas for quite a while,” he says, noting “striking” figures showing that connections to the gas transmission network are at a record level.
While elements of the industry have been mulling over the decommissioning of the gas grid, the total number of connections to the network have grown by 21,000 since 2022, says James Earl, chief executive of Future Energy Networks (FEN). “There's a slight growth but it’s not falling. In that context, the assumption that the gas network is going to slowly disappear isn't borne out by what's happening.”
And while the trajectory of gas demand is expected to decline as heating and transport electrify this must be divorced from any assumption about less need for infrastructure, he says.
Pointing to the government’s own Clean Power 2030 plan, Earl says: “Even when we're at the world of Clean Power 2030 and we're only using 5% unabated gas, we will still rely on all that infrastructure at times where the wind isn't blowing, the sun isn't shining and we're at peak (electricity) demand.
“There's good evidence out there that says that a pretty widespread gas infrastructure serving peaks in demand in various uses, is going to be a much better way of getting to net zero than not having it. We need to think about gas during the transition and at the end of the transition. I don't think the door is particularly open to that conversation around widespread gas infrastructure to serve the end point of the energy transition, whenever that may be.”
The relaxation of the government’s own aspirations for heat pump take-up in the recently published Warm Homes Plan provides a further indication that gas isn’t going to disappear soon, argues Mike Foster, chief executive of the Energy and Utilities Alliance. “It's increasingly looking like gas has got the long-term future that some people didn't want it to have,” he says.
Southampton LNG storage facility
Resilience on the rise
Berman points out that the government’s focus on security of supply reflects how resilience has been heading up the agenda following incidents like last year’s blackout at Heathrow Airport.
He says: “More broadly resilience is becoming more of a watch word for the energy sector in the UK and in Europe. Any government places pretty high value on security of supply because they know that it's such an acute challenge.”
Angela Needle, director of strategy at Cadent, says the company’s response to the security of supply consultation lays down a challenge to DESNZ to demonstrate that the electricity grid can show a similar level of resilience to the standards that the gas distribution network must meet.
Pointing to how the gas network must meet a ‘one in 20’ year peak winter demand, she says: “Show us what that looks like in an electrified system and show us that it's as resilient. Because we don't see that being clear, the inevitable answer is you'll have a gas system for a long time. The gas system was built with reliability in mind and we want to make sure that any future energy system has got the same reliability. The gas system already exists, and it can play a very positive role in supporting the energy system.”
The consultation paper on security of supply is the first of three papers that DESNZ plans to publish on the future of the gas system. It includes a proposal to introduce Contracts for Difference (CfDs) among a series of revenue-support tools that could be used to ensure supply meets demand for gas in the coming years.
Other proposals for enhancing the UK’s gas security include the government chartering a Floating Storage Regasification Unit (FSRU), like those deployed by Germany in the wake of the 2022 energy crisis, to make it easier to import LNG.
While some interviewees view the consultation paper as showing government thinking on gas security moving to a more interventionist approach, Energy UK expresses concern that there is still too much reliance on market signals alone.
Agreeing, Bell says: “At this juncture, you’re going to need to have enduring confidence that you can access LNG supplies or at least have enough storage so you can ride out blips. It was already clear post Ukraine. It's even more clear now and that means that government will need to take a much stronger role.”
Pointing to the lack of progress surrounding negotiations between Centrica and the government on securing support to refurbish the latter’s Rough facility, Berman says the UK remains a “real outlier” in northern Europe in its approach to gas storage. “The risk is that we end up in a scenario in which the government has just taken too long to make up its mind,” he laments.
In its response to the government’s consultation, National Gas calls on the government to maintain and expand existing storage and LNG infrastructure, while facilitating the introduction of FSRUs. The company says that to maintain security of supply at the new enhanced standard, which it recommends in its response, it would require approximately three Rough-sized storage facilities or six FSRUs.
The gas transmission network owner and operator says a strategic reserve, under direct or indirect government control, would be beneficial to security of supply. But, National Gas warns that the government must ensure that any such strategic storage reserve should be “additive and does not reduce existing storage stock”.
However, a former official questions whether the estimated five years that it would take to plan and build new gas stores means the investment in such facilities can be justified, adding that an FSRU might make more sense as it could be delivered more quickly. They say: “By the time you've got planning and you've built the strategic storage you may not need it because gas demand is going down. Although you need it for your one in 20 (year event), that rules out strategic gas storage just because of the time that it would take.”
Ultimately the solution to the current crisis should not be about making it easier to import LNG - as the government appears to be leaning into in its consultation paper - but to minimise as much as possible the UK’s reliance on gas full stop, Bradshaw says: “We should be preparing for the 2030s and driving down gas demand and how we build an energy system for the 2030s that is both low carbon and resilient and reduces this constant reliance on exposure to the global gas markets.”
The current crisis should, however, check the anti-net zero momentum, which has been building up from the government’s political opponents, says Stonehaven’s Bell: “Ultimately it does provide a real challenge to the Reform view of the world that you can have another dash for gas. I can't see how you can make a case for that until the memories of all these events have faded a little.
“It's just not true and it was never true. Now the wind is entirely behind wind turbines, and other renewables, because you have no other option for reducing the reliance upon a fuel source, which is not going to get less volatile.”
“Ultimately it does provide a real challenge to the Reform view of the world that you can have another dash for gas. I can’t see how you can make a case for that until the memories of all these events have faded a little.”
Adam Bell, head of policy, Stonehaven
