Gas Storage

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(No Transcript)
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Gas Storage the DTI perspective

• John Havard
• Energy Markets Unit, DTI
• Presentation to the Geological Society 19th
  October 2004

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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

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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

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Declining UKCS production

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

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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

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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

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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

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The Governments 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

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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

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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

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The need for flexibility

• Gas demand is seasonal need swing supply
  capability
• Ratio winter peak daily demand to annual average
  daily demand gt 30
• Ratio of annual low daily demand to winter peaks
  is gt 50

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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

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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

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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

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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

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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)

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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
32
92
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Source DTI economists
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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

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The potential for new projects
Main regulatory regime
Opportunities
Storage Types
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Offshore Storage
Offshore production regime
Onshore storage in natural porous strata
Production regime Gas Act 1965 Planning
permission and HSE
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Onshore storage in salt caverns
Limited by Geography Cheshire and East
Yorkshire
Planning regime and HSE
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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