Unfounded fears for UK gas security - storage is not the only answer

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25 April 2013, Gas

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Datamonitor's European Gas Assets Database (EN00061-002) shows that the UK has relatively little operational gas storage capacity compared with Germany, Italy, and France. Currently UK storage covers 14 days of supply, with plans to supplement this with 12,775bcm of planned capacity, of which just over 761bcm is under construction. The amount of planned capacity is second only to Italy, which has 19,363bcm of planned capacity and 1,075bcm under construction. But does the UK really need this much extra storage capacity?

Measuring the UK's storage in terms of the number of days of forward demand is not meaningful, as the DECC and Ofgem comment in their Statutory Security of Supply report. In reality, gas from storage is not the only source that is used to meet peak demand.

Unusually low temperatures in 2012-13 have seen demand rise sharply and gas storage levels fall. Unsurprisingly prices spiked, and were given an extra push by a temporary supply disruption to the UK interconnector with Belgium. It was this exceptional situation that led to calls for investment in storage capacity.

However, this neglects the fact that there is an ample reactive gas supply available to be imported. The UK has three gas interconnectors, and significant new liquefied natural gas (LNG) capacity, such as the new South Hook terminal with 775mcm of storage capacity. The availability of Norwegian, Qatari, and Russian gas removes the need for excessive storage investment.

Of course, greater import dependence means the UK will be at the mercy of the marginal world import price. LNG shipments, for example, are regularly diverted to markets where prices are higher, like Asia. The planned storage investment is more a reflection of the public's sensitivity to gas price volatility than of a real need for more capacity.

www.datamonitorenergy.com / asken@datamonitor.com / @DatamonitorEN

Source: MarketLine

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