Should we underwrite new gas storage? Think about the ‘smart, flexible’ system plan first

Once again gas suppliers are arguing that consumers should underwrite more gas storage for Great Britain. The argument is that GB ‘nearly’ ran out of gas during the ‘Beast from the East’, and the BEIS Select Committee has duly announced an inquiry.

Sometimes it’s worth consumers underwriting infrastructure. But let’s look at a few points to consider before agreeing to take on that cost for gas storage.

  • It’s always worth remembering that ‘nearly‘ is ‘didn’t‘ – ie, we didn’t run out of gas during the ‘Beast from the East’. This is despite the fact that Centrica’s Rough store is now largely out of operation and, as National Grid says in its Winter Outlook consultation, “very low temperatures contributed to the formation of ice on many offshore platforms. This led to issues with asset operation and resulted in onshore supply losses. As a result, forecast supply for 1 March was much lower than expected, particularly in the first part of the day.” But when prices rose (that’s the market working), “gas flowed into GB through the interconnectors. As assets were brought back on line, more gas was able to flow into the NTS from the UK Continental Shelf and Norway.” 
  • Gas use is falling – and will continue to do so. It could fall faster: in its Future Energy Scenarios, National Grid notes that, “Improving the thermal efficiency of most homes by one EPC rating gives the potential for a 14% reduction in residential gas demand in 2030, a 17% reduction in 2040, and a 23% reduction in 2050. In 2050 this equates to 18TWh.”
  • Supplies are diverse. During the Beast from the East, LNG supplies arrived at GB terminals – but they were mostly not called on. 
  • We do have access to storage. European gas storage is extensive, and available to GB customers  (Brexit notwithstanding) through the interconnector. And IUK is large – it can import 20bcm/y, almost a third of our annual demand. 
  • The problem is often not having gas supplies, but having them in the right place. National Grid’s system was designed to transport gas from north to south, but now the pattern of use is very different, causing growing problems with maintaining pressure in specific areas. Some gas shippers exacerbate this problem: they are supposed to inject gas consistently through the day, but they wait until late and ‘catch up’ at the end of the day. 
  • Increasingly, gas is about local issues and operability. Building storage in the wrong location may simply worsen that problem. In contrast, injecting gas (from anaerobic digestion) at beneficial points in the system, or inviting companies to flex their use is a more ‘smart, flexible’ (and greener) solution.

What’s the upshot of this? It may be worth investing in more gas storage, but first, we must:

  • Invest in energy efficiency. That will reduce gas and power needs for ever. Once we understand how much investment storage proponents require, a cost benefit comparison against energy efficiency should be run before any decision is made.
  • Consider location and operability. We need to operate the system as efficiently as possible. Check that shippers are acting to maintain network pressures and operability. Make sure that potential storage sites are beneficially located for current and future supply scenarios. Look at ‘green’ gas storage and AD as an alternative. 
  • Look at ‘smart, flexible’ solutions and – as with ‘Power Responsive’ – widen the market for demand response.

Further reading

I don’t always argue that shortages are a good thing, but a too-comfortable power margin is also not much help in developing the ‘smart, flexible’ energy system supposed by BEIS and Ofgem, see: Don’t mention the margin

The real failures on energy security

2 comments for “Should we underwrite new gas storage? Think about the ‘smart, flexible’ system plan first

  1. Clive Moffatt
    October 29, 2018 at 10:06 AM

    The situation in March would have been much worse had the cold weather lasted a couple more days and there had been no wind or coal power on the system.
    A year ago, following the publication of a strategy assessment by Cambridge Economic Policy Associates (CEPA), the Government concluded that the UK gas supply system was “robust” and could cope with bad weather and high energy demand.
    But GSG consider that this analysis is fundamentally flawed because
    (a) as the UK Energy Research Council (UKERC) pointed out only a few weeks ago it focuses on potential supply diversity and import capacity – the fact that we have the capacity to buy in LNG and pipeline supplies does not mean that the gas will be there when we need it and
    (b) the official definition of gas security takes no account of the impact of shortages on energy prices – price security is as important as physical security. The IEA defines energy security as “the uninterrupted availability of energy resources at an affordable price”. The GSG believes that the UK should adopt a similar definition.
    A higher level of UK gas storage will reduce the threat of gas supply disruptions and mitigate the associated impact on energy price volatility for the benefit of all consumers

  2. Alastair Martin
    October 26, 2018 at 8:27 AM

    Excellent points, well made. I believe Government’s main task now is to show that it believes in its own strategy. We have a new emphasis on energy efficiency, and the smart, flexible energy system project is moving from consultation towards real policies. The new energy system is shovel-ready; we just need to dig in the right place.

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