National Grid warns the UK’s gas supplies are running low
As freezing weather continues to seize the UK today, National Grid has warned Britain does not have enough gas supplies to meet demand.
The UK's grid operator issued a gas deficit warning as a perfect storm of supply issues and rocketing demand hit the nation, saying the UK's gas supplies fell more than 50m cubic metres short of demand expected today.
By early afternoon, National Grid was forecasting daily demand of 403.5m cubic metres, more than 100m cubic metres above the average for this time of year.
"National gas demand today is high and due to the extreme weather conditions, there have been gas supply losses overnight," National Grid said in a tweet.
"This is an indication to the market that we'd like more gas to be made available to ensure the safe and reliable operation of the national gas network. We are in communication with industry partners and closely monitoring the situtation."
Roshan Patel, an analyst at Investec, said National Grid would take corrective measures for both the demand and supply side, including paying large industrial users to cut gas usage.
For consumers, he said there would be no immediate impact on tariffs, unless suppliers think the price spikes could become more frequent.
The impact on energy suppliers could be more severe, however. Smaller suppliers typically hedge gas purchases over the short-term, meaning they suffer the most from temporary spikes in wholesale prices.
"An extended period of high short-term gas prices and high demand can be a significant hit to profits, which may undercut the aggressive pricing of some smaller entrants," Patel said.
According to Tom Marzec-Manser, the head of the European gas team at commodity price agency ICIS, the warning was issued following an outage at the South Hook liquid natural gas (LNG) terminal in Wales, where all 60m cubic metres per day of capacity came offline in an unplanned outage. This piled on top of an ongoing outage in Norway and issues with a pipeline in the Netherlands yesterday.
Marzec-Manser has said while it was highly unlikely the UK would run out of gas, Europe was playing "tug-of-war" over its available gas supplies as countries across the continent grappled with much lower temperatures than usual on top of supply outages.
The supply issues have caused within-day wholesale UK gas prices, which yesterday hit a 12-year high, to jump to around 225p per therm this afternoon.
Before the recent spike, the average within-day price in February was 56p per therm.
Tighter supply follows closure of gas storage site
Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit (ECIU) said today's warning was grounded in the failure by successive governments to map out a secure gas future as they had successfully done for electricity.
Last year, Centrica closed the Rough gas storage site, which was the biggest in the UK.
Patel said the move had naturally led to moments like this week's price spike. He said:
The government has banked on ‘flexibility’ saving the day. In the case of gas markets, it signed off the closure of Centrica’s Rough gas storage facility last year. In the current cold snap, imports and other sources of flexibility have not prevented massive price spikes as hoped, which consumers will ultimately pay for.
Marshall added that the UK is overly reliant on gas in the power and heating sectors. Nearly half of Britain's electricity is produced by gas while 84 per cent of homes are heated with it.
“Experts have long warned about putting too many eggs in the same basket, with events such as today the undesirable outcome," he said.
However, a spokesperson for the Department for Business, Energy and Industrial Strategy said a gas deficit was "not triggered because the country is short of gas, but is one of the short-term measures that the National Grid can take to make sure supply meets demand".