From global leader to crisis: how did the UK lose its grip on gas?

Energy
Some have said this week’s 'perfect storm' of problems will raise questions about the UK’s energy security Credit: Yui Mok/PA

In less than a decade Britain has lost its lead in the global gas market and now risks plunging into a gas cost crisis.

In 2010 the UK was one of the top ten gas producers in the world. The UK's domestic reserves were enough to heat Britain’s 30 million homes and run a fleet of gas-fired power plants while remaining a net exporter of gas until 2005.

But this week, an explosion almost 1,000 miles away caused gas prices to rocket, exposing the growing reliance on other nations to power the energy system.

In an Austrian town of fewer than 200 people a fatal blast ripped through the European gas markets driving UK prices to highs not seen since early 2013.

The UK was already reeling from the shock shutdown of the North Sea’s most important pipeline system, just as freezing temperatures swept the country in the first winter since the country’s main gas storage facility shut down.

The “perfect storm” which triggered the UK’s looming winter gas crisis may have been ignited by a string of fluke blows, but their outcome was far from unexpected.

How could the UK run short of gas?

For years experts have warned that the stark reversal of Britain’s energy fortunes  has left the country vulnerable to the eye-watering price shocks which have now emerged.

Last year the UK’s reliance on imported gas increased by almost a quarter from the year before, stoked by rising demand for heat and gas-fired power.

Where North Sea gas once stood, is now a growing reliance on imports from Norway, Qatar and the Russian gas which flows into neighbouring markets.

The remaining gas supplies produced in UK waters are connected to the mainland by the Forties pipeline which stretches over 100 miles long and has been responsible for delivering gas and crude to meet around 40pc of Britain’s needs for the last 42 years.

This critical piece of national infrastructure was shut down on Monday after a hairline tear along a section of onshore piping outside of Aberdeen forced an emergency closure of the entire Forties network.

The gravity of the Forties outage was magnified by an explosion one day later at a key hub for Russian gas imports into Europe. Russia is now the biggest single supplier of European gas  and the Baumgarten blast triggered a state of emergency in Italy which reverberated across Europe’s energy markets.

The Forties pipeline was sold-off by BP to Ineos only six weeks ago in a sale which rankled critics of the privately-owned company. Unions raised concerns that the chemicals giant owned by billionaire industrialist Jim Ratcliffe was far from an ideal custodian of a North Sea icon which supports the jobs of hundreds of thousands of workers and the nation’s energy.

The twin-blows hit the UK at the same time as freezing conditions and technical difficulties in the Norwegian gas fields.

Where does UK gas come from now?

The bulk of the UK’s rising imports come from Norway, itself an ageing gas provider which has been dogged by technical faults in recent weeks.

Pipeline gas from the Netherlands and Belgium bring continental imports, a third of which flow from Russia, leaving UK energy bills exposed to supply shocks from disruptions across Europe.

The UK also imports gas which has been cooled to a liquid and carried on tankers. These mainly come from Qatar but in the coming weeks the first tanker of liquified natural gas (LNG) is expected to arrive from a sanctioned Russian export project.

In the past this gas would be stored in subsea gas storage caverns to draw from when market prices are high, but the largest of these, Rough, was shut down over the summer after decades of use and no prospect for fresh investment. 

Energy giants and policymakers, including former energy minister Charles Hendry, have all warned Government to help support new investment in gas storage. But ministers have shied away from the plans which could prove to be loss-making in a mild winter.

“While the UK does have diverse sources of gas supply, including LNG, it could require GB consumers to pay a high price to secure them," said a spokesman for SSE. "Gas storage facilities play an important insurance role by smoothing out volatility in gas prices and providing rapid response to fluctuations in demand and supply."

Crisis, what crisis?

Government has strenuously denied any gas supply crisis as a result of the unprecedented breakdown of gas flows from the North Sea and neighbouring continental gas markets. That this has happened at a time of historic highs in demand and limited domestic storage reserves is not problem because the UK is able to access many gas supply options, according to officials.

Government, together with National Grid, has analysed the UK’s supply margins since the double-blow and believe that they are still “healthy”. But a spokesman said the Government hasn’t modelled an impact on cost.

The market price for winter gas has already soared by 40pc. Given that wholesale prices make up half the average household energy bills suppliers are unlikely to be able to hold tariffs down for too long.

The substantially higher costs are also likely to hit industrial gas users which are already struggling with the rising cost of electricity too. Meanwhile motoring organisations have warned that oil prices have climbed so steeply that a 3p per litre increase could hit the pumps by Christmas.

The UK’s winter gas may be accessible but it will come at a cost whether Government uses the word ‘crisis’ or not.

Could Britain have avoided the perfect storm?

Critics of the Government’s energy policy have seized the opportunity to point out the myriad choices made to clean up the energy system has contributed to the gas supply crunch.

This week’s “perfect storm” of problems will raise questions about the UK’s energy security, said Malcolm Graham-Wood, a veteran energy industry adviser.

He said the gas crunch is an “entirely predictable” result of the UK’s creaking infrastructure and Government’s bungling energy policy.

Mr Graham-Wood blamed the Government for its “short-sighted and ridiculous” decision not to invest in new gas storage facilities.

Gas industry supporters blame the Government’s zeal for cutting carbon emissions for distracting officials from the need to support investment in new gas storage projects.

Meanwhile, shale proponents believe streams of gas from fracking wells onshore would help ease price shocks too.

Even the closure of the UK’s coal-fired power plants – which once generated the lion’s share of electricity – has been blamed for increasing the UK’s reliance on gas-fired power in the absence of much-needed investment in renewables and nuclear power.  

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