Gas storage the dti perspective
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Gas Storage – the DTI perspective. John Havard Energy Markets Unit, DTI Presentation to the Geological Society 19 th October 2004. Contents. The significance of the decline in UKCS production for the UK economy The Government response and security of supply

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Gas storage the dti perspective

Gas Storage – the DTI perspective

John Havard

Energy Markets Unit, DTI

Presentation to the Geological Society 19th October 2004


Contents

Contents

  • The significance of the decline in UKCS production for the UK economy

  • The Government response and security of supply

  • The contribution of gas storage in providing flexibility


Declining ukcs production

Declining UKCS production

  • Peak production capability of UK gas fields declining faster than expected.

    • Historically high gas prices mean Southern North Sea gas fields being produced harder in both summer and winter

    • Transco forecast of peak UK gas supply for this winter reduced by 9% from 2003 forecast


Declining ukcs production1

Declining UKCS production

  • By about 2006 the UK will be a net gas importer


Implications for gb gas supply

Implications for GB gas supply

  • Already imports gas during winter peak period to meet GB demand

  • By around 2006 likely to become a net importer of gas on an annual basis

  • By 2010 imported gas will meet about half of GB demand.

  • Implications for:

    • Security of supply

    • Swing capability to meet winter peak demand


The importance of gas

The importance of gas..

  • The GB economy is dependent on gas:

    • 20m households use gas directly for cooking and heating

    • 40% of power generation is gas fired (likely to be c.60% by 2010)

    • Over 50% of non transport energy use

    • Industry reliant – 1/3 of gas consumption


Contents1

Contents

  • The significance of the decline in UKCS production for the UK economy

  • The Government response and security of supply

  • The contribution of gas storage in providing flexibility


The government s response to security of supply

The Government’s response to security of supply

  • Liberalise markets to encourage competition and security through diversity

  • Govt “will not intervene in the market except in extreme circumstances such as to avert, as a last resort, a potentially serious risk to safety”


What does the dti do

What does the DTI do?

  • DTI aims to create a framework where the market can operate effectively and efficiently

    • Light touch regulation of monopoly and potential competition

    • In a competitive market, the private sector will respond to commercial signals


The role of regulation

The role of Regulation

  • Transco must provide sufficient transportation capacity in the network to cover peak demand (a 1 in 20 winter)

  • “Balancing Duty” - shippers have to balance the gas they put onto the network with their ‘offtakes’ on a daily basis

    • Storage provides shippers with additional flexibility to meet this duty

    • Without storage , there is more price volatility and therefore risk


The need for flexibility

The need for flexibility

  • Gas demand is seasonal – need ‘swing’ supply capability:

    • Ratio winter peak daily demand to annual average daily demand > 30%

    • Ratio of annual low daily demand to winter peaks is > 50%


Contents2

Contents

  • The significance of the decline in UKCS production for the UK economy

  • The Government response and security of supply

  • The contribution of gas storage in providing flexibility


Regulatory duty encourages access to swing

Regulatory duty encourages access to swing

Commercial Decision on how

to fulfil regulatory duties

Trade and

Hedge

Demand-side

response

Oversize import

infrastructure

Build storage capacity

  • Without additional daily “swing” capacity the balancing duty could act as a barrier to entry


Gas storage provides swing capability

Gas storage provides swing capability

  • Might not be economic to oversize fixed import structure

  • Diversity of swing is an important aspect of security of supply

  • Storage provides another source of flexibility

  • Value in close to market sources

  • Gas quality not a constraint with stored gas


The uk gas storage market

The UK Gas Storage Market

  • Currently storage gas accounts for c.4% of overall consumption mix

  • Offshore “Rough” facility accounts for 80% of UK storage space – likely to fall to 60% of total market with future known developments

  • Near future capacity rights in existing storage facilities are over-subscribed

  • Record forward prices for next 2-3 winters


Gas supply for winter peaks

Gas supply for winter peaks

  • UK swing capacity is provided by:

  • UK Southern Basin gas fields

    • By 2009/2010 this is expected to decline significantly

  • The Belgian Interconnector (has capacity to supply 5% of peak day demand)

  • Storage

  • Linepack

  • Interruption (a flexibility rather than swing)


Is the uk vulnerable

Is the UK vulnerable?

  • Significantly less storage than some EU member states

Daily Deliverable Gas from Storage, compared to Approx Peak Day Demand

Approx Peak day demand in 2000

High levels of storage

may be for export

to Belgium

Daily Deliverable

from Gas Storage

2003

Gas Capacity (MCM)

114%

95%

92%

32%

29%

Source: DTI economists


The future is the uk vulnerable

The Future: is the UK vulnerable?

  • New gas import infrastructure is expected to meet annual average demand

  • But will need additional SWING capacity to meet winter peak demand in the future

  • Swing capacity will potentially come from a variety of sources:

    • LNG, storage, UKCS, new pipeline, new interconnector, linepack, interruptions


The potential for new projects

The potential for new projects

Main regulatory

regime

Opportunities

Storage Types

Offshore Storage

?

Offshore

production regime

Onshore storage

in natural porous

strata

Production regime

Gas Act 1965

Planning permission

and HSE

?

Onshore storage

in salt caverns

Limited by

Geography:

Cheshire and East

Yorkshire

Planning regime

and HSE


Conclusions

Conclusions

  • UK increasingly needs swing capacity for:

    • Peak winter demand and daily demand fluctuations

    • Balancing Duty

  • Gas storage is an important source of swing capability

  • The market will decide how much additional storage capacity is needed

  • Conference and the professional expertise represented will have an important role in informing the market of opportunities


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