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  • May 24th, 2013

A perfect storm of energy supply problems

March was not a good month for UK energy security.

Firstly, problems at a gas processing plant in Norway disrupted supplies through the Langeled pipeline that brings Norwegian gas to Britain.

Then a water pump failure led to a brief shutdown of the gas Interconnector between the UK and Belgium. The UK gas price surged to record levels.

“People were getting very nervous that the gas was going to run out,” says Niall Trimble, head of the Energy Contract Company, a research firm.

Under normal circumstances, problems with a pump would not upset the UK energy balance. But this year was different. A long, cold winter meant gas storage levels were unusually low as power providers drew down stocks to cope with high demand. That coincided with a sharp fall in imports of liquefied natural gas, which normally make up for any shortfall in pipeline supplies.

The result, according to Robin Hastings, director of energy and infrastructure at the Crown Estate, was a perfect storm of supply issues. “We really only had six hours’ worth of gas left in storage,” he says. “The bottom-line is that in the UK we are in a place where the gas supply is dangerously low.”

He even conjured up a return to the 1970s, when disruptions caused by miners’ strikes led to power blackouts.

Such warnings matter. The Crown Estate controls the country’s gas storage sites, giving it a unique insight into the state of the UK’s stocks of gas – and its dire lack of gas storage capacity.

But that is part of a much broader issue – the UK’s increasing reliance on imported gas, and the risks that exposes it to.

It is a point that Ofgem, the energy regulator, highlighted in a report last year. “As the flexibility and stability provided by North Sea production declines, GB consumers could be more exposed to seasonal swings in gas prices and medium-term volatility,” it said. And more volatility could ultimately translate into higher household bills, some analysts say.

The country now has a broad range of import options, with LNG-receiving terminals in Milford Haven and the Isle of Grain, the Langeled pipeline from Norway, and two interconnectors linking Britain to European gas markets.

Because of that, the risk that the UK will ever experience real shortages is minimal, experts say. “One of the big successes of the industry has been the way it has managed the transition from self-sufficiency in gas in 2003 to 60 per cent import dependency in 2013,” says Nick Winser, executive director of National Grid. “Billions of pounds have been spent to make sure the gas supply remains secure and those investments have paid off fantastically.”

He says the March mini-crisis showed that the UK gas market is working. When the cold weather persisted, as storage levels ran down and the price of gas rose, the UK started to attract cargoes of LNG. Tanks at Grain and Milford Haven began to fill.

Overall, the UK is seeing a worrying decline in LNG imports. Deliveries into the UK peaked in early 2011 but have “fallen like a stone ever since,” Mr Trimble says. The main cause is the Fukushima disaster, which led to a massive increase in Japan’s imports of LNG as its nuclear plants went offline.

Britain scraped through the March turbulence, he says, thanks to higher imports from the continent through the Interconnector. If gas demand recovers in Europe, these may be more constrained in future. “It’s premature to conclude that the market is working,” he says.

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