The UK is heading into winter with the lowest level of gas stores since records began, prompting fears that there could be shortages as demand increases during the colder months.
Chris O’Shea, the head of British’s Gas’s parent company Centrica – which also runs Britain’s largest storage facility – said it should be a “huge concern” that the country has “almost no gas storage“.
Britain’s gas stores are at 30 per cent capacity this week, compared to 46 per cent this time last year and 90 per cent two years ago.
This comes as energy prices are due to rise by 4 per cent from October but may increase even further next year unless the war in Iran is resolved.
Experts told The i Paper that while the UK is some way off running out of fuel, the knock-on effects of global markets as a result of the closure of the Strait of Hormuz have left the country more vulnerable than ever.
This autumn, the Network Emergency Co-ordinator will test various scenarios that could take place if there is a gas crisis, including rationing, although that would be a worst-case event.
Why is gas storage so low?
Britain has always had smaller capacity for gas storage than our European counterparts, preferring to rely on short-term capacity that can be filled up and withdrawn from quickly.
Storage is not funded by the Government, so energy companies will only top up their supplies if it will make them a profit – if they can buy gas cheaply with a view to selling it off later at a higher price point.
The UK has approximately eight gas storage sites and typically has a much lower maximum capacity than France, Germany and Netherlands. A large portion of Britain’s gas supply is imported from Norway with lesser amounts coming from the US, Algeria and Qatar.
Amid record gas prices this summer as a result of the USA/Israel-Iran war – which halted production of Qatari liquid natural gas (LNG) supplies for several months, it was deemed too expensive to buy gas for storage.
Even European countries, which rely more heavily than the UK on storage, did not top up as much as usual.
“The very high gas price this summer has meant that they’ve been very hesitant to buy expensive gas and put it into storage in Europe, fearing that the gas price come December, January time might be low and they’d lose money,” said Professor Michael Bradshaw, of the UK Energy Research Centre and Warwick Business School.
What would happen if the UK ran out of gas?
Every year, the Network Emergency Co-ordinator runs a test scenario for what would happen if the UK ran out of gas. Their next test is due in early October.
A state of emergency would be likely to trigger notifications sent to mobile phones – similar to the one received during the summer wildfires – telling people to reduce their energy consumption.
The Government would seek to encourage “major consumers” such as factories to close down over the winter, possibly providing financial incentives.
There would be diplomatic negotiations with European leaders on how to share gas, with the possibility of international rationing rather than price-driven markets.
In an extremely severe situation, Europe could prevent the flow of gas through interconnectors, but this is unlikely because of the damage it would do to future trade relations.
A National Gas spokesperson said: “Our recently published Summer Outlook highlighted that there is a sufficient supply of gas to meet demand and we have no concerns about current storage levels.
“Britain continues to benefit from a diverse range of supply sources, of which storage is only one component and should be considered alongside domestic production, imports, LNG and interconnectors. This interpretation of current storage levels does not fully reflect how Britain’s gas system operates and risks causing unnecessary concern for consumers. “As the gas system operator, our outlooks have consistently shown that, in some circumstances, supply margins are becoming tighter due to relatively stable peak gas demand levels, declining domestic production, limited LNG capacity and a difficult commercial environment for storage operators and interconnectors.”
How could Trump affect UK gas?
The comments by Centrica’s Chris O’Shea’s were prompted by a call from Norway’s energy minister for European countries to develop their own energy sources, suggesting they might not always be able to rely on his country.
Norway is the UK’s largest gas supplier, providing more than 40 per cent. Adam Bell, partner at consultancy Stonehaven and a former head of energy strategy in the government, said he did not think they Oslo was at risk of shutting off supply as they would then have “more gas than they could ever use”.
A much bigger risk, in his view, is the 15 per cent of gas that Britain import from the US.
Donald Trump listens as a reporter asks a question in the Oval Office of the White House (Photo: Manuel Balce Ceneta/AP)“We assume this winter, we can rely upon American energy,” said Bell. “If we can’t rely upon the American energy for whatever reason… then we would be very much in trouble.”
He added that there is a risk Donald Trump could ban exports of liquid natural gas in a bid to boost domestic popularity before the US midterm elections next month.
“If he does that, then I think you can assume the [UK] Government would need to go into emergency mode a couple of times over the winter,” Bell said.
How would a supply crisis hit bills?
Bell is less worried about storage than about further price rises over the winter. “We’re almost certainly not going to physically run out of gas, but we should assume it’s going to be expensive,” he said.
Bradshaw agreed, predicting that the energy price cap will rise again when it is set at the beginning of next year.
“When they reset it again in January, it will be based on what has happened to the price between October and the end of December,” he explained, and the “panic” over the lack of storage could drive prices up, meaning the cap would be raised.
“Domestic demand is very weather-sensitive. If we have a cold winter, and Europe has a cold winter, they’ll have to drawn down on that storage,” he added.
A cold snap after Christmas would mean a “double whammy” for consumers, with higher energy usage combining with higher prices to make bills skyrocket.
Ofgem has said October’s cap is equivalent to £1,723 a year for a typical household’s gas and electricity use, up from £1,663 from July to September period.
Energy consultancy Cornwall insight is already predicting that the cap will rise a further £149 a year in January, putting the an average annual bill at £1,872.
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