Winter Gas Supply Uncertainty:

Catalyst Commercial Services Ltd — Tue, 27 Mar 2007 21:49:44 +0000

Britain still faces gas supply uncertainty next winter because new import facilities do not guarantee delivery and demand could be much higher, network operator National Grid said on Tuesday. Britain sailed through an unusually warm winter very comfortably supplied with gas and without really testing its improved import infrastructure, National Grid said. But new pipelines and liquefied natural gas import terminals cannot guarantee healthy supply at low prices if next winter is cold, because other countries could offer producers more money for their product, the power and gas network operator said in its preliminary consultation on supplies for Winter 2007/08. “Whilst developments in importation infrastructure continue, the supply-demand outlook for 2007/8 remains uncertain,” the grid said its report. “The range of potential supply availability is wide, reflecting not only the normal risks associated with major infrastructure but also commercial uncertainties associated with the utilisation of the infrastructure.” Stephen Smith, the managing director of markets at UK energy regulator Ofgem said that, despite a big fall in wholesale prices since new pipelines like Langeled from Norway and BBL from the Netherlands opened last year, there are a “number of risks and challenges” in the outlook for the winter. “It is unclear to what extent we can rely on the gas import pattern seen this winter being repeated in future years, particularly against different gas demand conditions in Continental Europe,” Smith said. While Britain’s ability to import enough gas to keep warm was greatly improved by new pipelines opened last autumn, the country also enjoyed its warmest winter since records began, meaning much less gas was needed for heating. Mild weather across Europe also meant there was little demand for gas on the continent and led to a slide in UK gas prices, reversing years of soaring fuel costs spurred by rapidly declining UK domestic output. Average wholesale gas prices during winter 2006/07 were nearly 60 percent lower than the average for winter 2005/06, according to Ofgem. Gas demand would have been even lower had it not been for long term outages at nuclear power plants and falling gas prices leading to more being used for power generation. “Last winter the operation of the electricity market was characterised by gas-fired generation displacing coal-fired generation,” National Grid said, adding that gas demand for power generation had far exceeded forecasts. Because gas was used as fuel for around one-third of all the power generated in the UK over the period, day-ahead baseload power prices have also fallen by about 50 percent year on year, Ofgem said.

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Winter Gas Supply Uncertainty:

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