We may not be running out of gas but we still need a serious strategic gas reserve | Nils Pratley
Alarmed that Great Britain has only enough gas in storage to cover two days of consumption? Actually, Michael Shanks, the energy minister, is right that the bald statistic is not a reason to run for the hills.But he would help his case if he admitted that the long era of running a “just-in-time” approach to gas supplies looks increasingly unworkable.Shanks is obviously correct that Great Britain does not source its supplies from storage.About 75% of our gas comes from the North Sea – from domestic fields and via the 725-mile underwater Langeled pipeline from Norway – and neither source is affected by the war in Iran.As for imported liquefied natural gas (LNG), typically about 18% of supplies today, the market is disrupted now that Qatar, about a fifth of the global market, is not producing.
But the rest of the market is still operating, so it’s a question of paying nosebleed rates for shipments, probably from the US, which already dominates our LNG imports.And the final pieces in “the diverse and strong energy mix”, as Shanks described it, are the two-way interconnectors to the Netherlands and Belgium that plug Great Britain’s gas system into the continent’s.But here’s the rub: while the Great Britain gas set-up looks sufficiently secure for now, the war is demonstrating two reasons why more storage looks essential if energy shocks are becoming more frequent.And transition to an intermittent renewables-heavy power system offers a third reason.First, there could be a harder price crunch, say gas experts, if the war goes on for months and the LNG market becomes so dysfunctional that continental European countries can’t refill their storage sites, which are much bigger than Great Britain’s, over the summer.
That would set up a terrible dynamic for the winter in which Great Britain’s gas prices would have to trade at very fat premiums to attract flows across the interconnectors.In that case, it would be better to have our own strategic reserve to ride the bumps.Second, there’s the problem identified in a report by the government’s in-house energy system operator last year: what happens if a critical piece of kit – say an LNG import terminal (we only have three), or the vital Langeled pipeline – were to be out of action during a prolonged spell of cold weather in the dead of winter?The report was less than reassuring: there is an “emerging” risk of Britain running out of gas from 2030-31, particularly if decarbonisation efforts are behind schedule.The government is yet to respond but the Iran war will complicate matters.One of the report’s proposed remedies was additional LNG import capacity, which would help if Langeled were knocked out by, say, Russian sabotage.
But more LNG terminals would be useless if the problem is that LNG cargoes can’t be relied upon.In that case, the only real protection comes from having extra storage – the option successive governments have resisted on grounds of cost.Centrica’s Rough storage facility, off the coast of Yorkshire, was partly reopened after the price spike following Russia’s invasion of Ukraine.But the company, having clocked up losses on Rough of £45m last year, stopped injecting as it waits to see if the government will agree a price-support deal.Third, there’s a problem identified by Dieter Helm, a leading energy economist, in a blistering report on Monday about the wider failures of Britain’s approach to gas.
Here’s a flavour: “The central pillar of energy policy should be security,It is no good being ‘green’ if you cannot defend your country,In the British case, a central piece should be a gas security policy, not bleating on and on about ‘getting out of gas’,We need gas and we will go on needing it for a long time to come,It is essential in the renewables strategy.
It is not fossil fuels versus renewables.The reality is that it is both and it is going to continue to be both.”One of Helm’s points is that intermittency of wind and solar generation renders gas power stations intermittent, too: operators don’t know how much gas they will need or when, so can’t write long-term contracts to secure supplies.Since the government’s clean power plan involves keeping the entire 35GW gas fleet on the system as backup, you would think this fundamental issue would get more ministerial attention.Helm’s solution: there needs to be a strategic gas reserve and gas power stations will have to be paid just to be available, whether through a Sizewell B-style funding model or some form of capacity contract (others argue for straightforward nationalisation).
Many factors, in other words, point to a need for more gas storage,As Helm argues, the dynamics of energy transition made the case anyway,But the Iran war, and geopolitical instability, are offering new reasons,The government can reassure us – fairly – that two days’ storage is fine today,But it still needs a strategy for a future that is arriving faster than it probably assumed.
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