SECURING THE UKS ENERGY REQUIREMENTS

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SECURING THE UKS ENERGY REQUIREMENTS

• Nicola Kirkup
• Energy Markets Unit
• Department of Trade and Industry

13 July 2006
2
Todays discussion

• Objective
• Challenge
• Market response
• Government

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We want secure, sustainable and affordable energy
delivered by markets
Appropriate framework
Competitive markets
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Todays discussion

• Objective
• Challenge
• Market response
• Government

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The UK market is facing a rapid transition to
becoming a net-importer of gas
Monthly net exports of natural gas in the UK Mcm
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In the medium term, the electricity market will
require significant new investment
Estimated power generation capacity requirement
to 2020 MW

• 25-30GW of new capacity likely required by
  2020-25

Assuming an illustrative peak capacity margin
of 20
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The resulting fuel mix may end up being dominated
by gas-fired capacity
A generation mix scenario to 2020 TWh
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And our gas import requirements will be delivered
from further afield (slide courtesy of Centrica)
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Todays discussion

• Objective
• Challenge
• Market response
• Government

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Companies are creating options to fill the
generation gap with new capacity
UK generation plant reserve margin
projections Percent
Takes into account announced nuclear shutdowns
but no other plant closures
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Investment in new gas supply infrastructure

• ca. 10bn being spent on new gas import and
  storage infrastructure
• expansion of B-UK interconnector, new NL-UK,
  Langeled from N
• 3 major LNG terminals others
• 10 new gas storage facilities
• investment in NTS
• all private money!
• gas from diverse sources.

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Planned UK gas import infrastructure (slide
courtesy of Centrica)
Tampen link to FLAGS 4 BCM capacity by Oct-2007
Contract awarded
Langeled 27 BCM capacity by end-2006
Connection to Ormen Lange gas field end-2007
Onshore link built at Easington
Anglesey Up to 20 BCM from 2008
BBL 16 BCM capacity by end-2006
New terminal proposed
On track
IUK 8 BCM expansion by end-2005 8 BCM
expansion by end-2006
Milford Haven Dragon 6 BCM by end-2007 South
Hook 10 BCM from 2007/8
First phase delivered
Construction underway at Dragon
Isle of Grain 4.5 BCM in 2005 8 BCM by end
2008
Canvey 5.4 BCM by 2010
New terminal planned
First LNG shipment arrived 4 July
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UK gas storage projects (slide courtesy of
Centrica)
These storage projects could add gt 3 bcm,
doubling current capacity
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And there should be an market incentive to ensure
sufficient diversity in fuel mix
Cost parity of new coal- and gas- and
nuclear-fired generation p/therm, /tCO2
CO2 price, /tCO2
2005
2010
2004
Gas price, p/therm
Forward price on 14 June 2006 assumes coal
price of 55/tonne coal with CCS has not been
analysed
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Todays discussion

• Objective
• Challenge
• Market response
• Government

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Ability of UK market to deliver is hampered by
external factors
Imports and gas price differentials winter
2005/6 Percent, p/therm
Ofgem is not satisfied that available gas was
released, use of storage was appropriate and
transit capacity was made available Ofgem
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Government action informed by business

• Continued efforts on EU liberalisation and
  support for Ofgem/EU investigation
• Maximising gas supplies (beach, interconnector,
  LNG terminals and storage)
• Improving the operation of the market (more
  information use it or lose it conditions North
  Sea information etc)
• Review of legislation/regulations for gas storage
  and supply infrastructure (incl. off-shore salt
  caverns and LNG)
• Energy Review

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The Energy Review is addressing the longer-term
challenges

• Challenges are
• Managing increased dependence on oil and gas
  imports and
• Ensuring that the market delivers substantial and
  timely investment
• Our Response
• A strong international agenda to promote open and
  competitive markets
• A market framework that is positive for
  investment and diversity and for the growth of
  home-grown energy

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Strong International Agenda

• To promote diversity of supply, we are active in
• Building stronger political relationships with
  energy producers
• Securing effective implementation of a
  competitive, liberal energy market
• Strengthening dialogue between consumers and
  producers

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Market Framework

• Quality of information
• Incentives for Investment
• Clean coal
• Securing gas supplies
• Maximising recovery from North Sea
• Limiting dependence on gas
• Managing risks of higher gas import dependence

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Thank you

• Nicola Kirkup
• Energy Markets Unit
• Department of Trade and Industry

13 July 2006