"A
concern for gas security "
By:
Nicholas Newman
Forecasting the future is always full of
uncertainties, there are too many doubts such as Black Swan's, banana skins and
acts of God that can make a forecast disastrously
wide of the mark. Well despite all these afford mentioned uncertainties, a group
of Britain’s leading industry gas experts were precisely trying to predict the
future of gas supplies for the UK at the behest of OFGEM, at a seminar held on 2
February 2012 at London’s Institute of Mechanical Engineering. Amongst the
questions asked were the following:
· Where will future gas supplies come
from?
· Will there be sufficient gas around
and how much will it cost?
· Does Britain need more gas storage
capacity?
· How stable will gas prices be and how
secure will gas supplies be?
· Is the UK becoming dangerously
vulnerable to the dependence on imports of gas supplies from
Qatar?
· Will America start export gas from
2014 onwards?
In the past
the main concerns for Western Europe were doubts about the price, availability
and security of supplies of Russian gas to the European Union. In the future,
Howard Rogers at the Oxford Institute of Energy Studies suggested that other
factors including:
· Future developments in American gas
production, especially the growth in shale gas production,
· Asian and European competition for
Qatari LNG gas deliveries, especially as Britain becomes increasingly reliant on
gas shipped from Qatar.
· The timing of the start of US gas
exports to Europe. Already, traders have factored the arrival of forward
European gas prices, which at least in the short term should depress the cost of
wholesale gas prices for a short while. Alistair Buchanan Chief
Executive of OFGEM has suggested that by 2014, the United States will be ready
to export its surplus shale gas production to Europe, once it's LNG import
terminals on the East Coast and Gulf of Mexico have been converted to LNG export
terminals, which include the proposed plants at Corpus Christi Texas and the
Cove Point unit in Maryland. However, the prospect of US gas exports to Europe
is still not yet a done deal with the current Obama administration, due to the
American government’s own concerns to achieve long-term energy
independence.
· However, Alistair Buchanan, noted
that America’s ability to export gas, will also depends on how quickly U.S.
regulators push for a switch from coal to gas power for electricity generation
and how quickly its economy grows in the coming years.
While Anne-Sophie Corbeau at
the International energy agency suggested other factors will have to be added
into Britain's gas supply equation. These
include:
· The security of gas supplies from the
world's leading LNG gas exporter Qatar, given that its northern neighbour is
Iran. The latest UK government figures suggests that Qatari LNG imports amounted
to 52% of the total gas consumed in the first nine months of 2011; this is up
from 11% in 2009 as a whole. The trouble Britain is that Qatar not only exports
to Britain and other European states, but also to Asian states such as China,
South Korea and Japan. We've already seen as a result the closure of several
Japanese nuclear power plants a spike in the price of gas has as Japanese power
produces and switched to imported gas to make up for the loss of nuclear power
generating capacity. In future years we're likely to see growth in gas prices
due to the increasing demand for gas Asian power generators as their economies
continue to grow. This will mean Qatari gas become an increasingly expensive
proposition for European gas consumers.
· The growth in Asian demand for gas
imports and the impact that nuclear power station building programs such as in
China are likely to have on the growth of demand for gas.
It is not surprising that
Britain is looking desperately for alternative gas supplies, such as American
shale gas exports, development of shale gas in Europe and even by the end of the
decade imports of gas from Australia.
In addition, Poyry energy
consultant and expert on shale gas Lucy Fields has pointed out that due to
various difficult environmental, legal and geological factors, Europe is
unlikely to experience a repeat of the American shale gas revolution. Instead,
the arrival of shale gas production is likely to be more modest in impact. In
addition, some expressed that once Australia's supergiant offshore gas fields
become fully operational such as Wheatstone and Gorgan, Britain will be able to
import LNG gas from there.
Lastly, this seminar total to
the issue of what is energy security, Pierre Noël from Cambridge University’s
Electrical Policy Research Group, defines energy supply security as the ability
of the energy system to meet contracted final energy demand under a gas supply
disruption, at peak time. However, risk adverse politicians tend to not trust
the ability of the international markets to top up supplies as required. Also,
for political and economic reasons, they are against sudden price spikes caused
by disruption to supplies, even though economists will regard such market
developments as an efficient method of rationing gas supplies. Instead, our
political energy leaderships will seek methods to reduce the potential for such
disruptions will have on gas supply availability. As a result, of the
disruptions caused by though Russian Ukrainian gas disputes, European Union
member states adjusted the market conditions in Europe to encourage greater
cooperation between operators and increased capacity for storage, in order to
insulate europe’s gas market against such emergencies. Such proactive action was
much to the annoyance of Europe's gas suppliers such as Gazprom and Sonatrach,
since such developments weakened such producer’s ability to influence the
market.
In Britain, there has been much political concern that
Britain has insufficient gas storage capacity. Though, many market operators
would disagree. The UK’s current storage capacity amounts to only 14 days’ worth
of gas supply—a dangerously low level compared with France which has 87 days’
worth of gas storage, Germany 69 and Italy 59, according to last
December’s report by MPs on the Energy and Climate Change
Committee. However, the reality is not as clear-cut as it initially appears. It
has been argued by some energy analysts that the reason gas storage capacity has
not been significantly increased in recent times are because of the following
factors:
· Britain has massive gas import capacity, via its
interconnector’s with the continent, especially the Norwegian gas
fields.
· Also, due to developments at Milford Haven in Wales
and, the United Kingdom has significant LNG import
capacity.
· Further, there is sufficient capacity to cope with most
peak time disruption scenarios in the years
ahead.
· UK security of supply relies on its ability produce
some gas itself and its ability to import gas from both European and global
markets.
Unfortunately, in Europe's
efforts to increase gas price competition by weakening the influence that oil
price indexation has on Europe's wholesale gas prices. Europe is likely to face
increased price and supply volatility as increasingly gas supplies will be
obtained on the spot markets rather than through long-term
contracts.
In order to improve their
U.K.'s ability to withstand gas supply disruption the government has given the
go-ahead for Gateway Storage Company to construct a new offshore gas storage
facility, not far from Barrow in Furness in Lancashire. Once completed, the
undersea caverns will have a working gas storage capacity of 1.52 billion
standard cubic metres (~562 million therms), adding nearly 30% to the current UK
gas storage capacity. Once this facility is completed in 2014, the United
Kingdom should have a similar storage capacity for gas equal to that of Holland
and in the longer term investors have plans to double the U.K.'s current storage
capacity, equally that of either France or
Germany.
This seminar was part of
OFGEM's first major effort to gather industry views on the UK's gas supply
prospects following the DECC request last year, an OFGEM spokesman said.
However, what this seminar revealed was the major differences between gas
producers, traders, consumers and regulators about the future course of UK gas
supplies. It also revealed how black swans such as the arrival of the American
shale gas revolution was unforeseen by many experts just a couple of years ago.
Though, I suspect a future black swan will be the impact that the Arab Spring
will have on Europe’s future gas supplies.In addition, the debate in the
question-and-answer sessions revealed how successful acts of God such as
European energy policy has been on affecting the growth in demand for gas and
how the market can be made to operate to meet the greater good of the economy.
As for banana skins, the un-intended consequences of the drive to the index gas
prices from oil prices is a good example. In the long term, it looks like
European gas prices will continue to increase, due to increased demand by
European, Asian and American power generators. However, the real question is,
where will Europe be obtaining its future gas supplies. I would not be surprised
that the European Union will be developing new gas fields in the Arctic regions
in the long term.
For
details of the slides used in seminar see:
http://www.ofgem.gov.uk/About%20us/PwringEnergyDeb/Pages/PwringEnergyDeb.aspx
