Monday, January 30, 2006

Gas Supply quite tight today

Predicted demand is 397 mcm (which is very high). Yesterday at 361 still used up a small amount of Medium Term Storage. If the reality turns out as predicted we could start on short term storage. Difficult to tell at the moment.

It does not feel that cold a day.

Sunday, January 29, 2006

Medium Term Storage remains the challenge

Although Long Term Storage is being depleted rapidly the tension will probably be around medium term. Long Term is at 68% following Saturday, but Medium term is at 72%. A small amount of gas was moved from Long to Medium term on Saturday. However, a lot of gas was still taken from Long Term.

Saturday and Sunday have substantially less demand than weekdays. This week looks cold, but not particularly cold. It is particularly cold weather that will cause the challenge, but we have avoided that since the thursday after Christmas.

The prognoses, however, are that there is little that can be done to rebuild storage now and it all rests on the weather.

Wednesday, January 25, 2006

NAO Goes Negative

The North Atlantic Oscillation has now gone negative. (See link) This is more likely to bring colder weather than average. The various models are still quite variable.

Gas consumption has started eating into Medium Term Storage.

Monday, January 23, 2006

Iran cuts Gas Supplies to Turkey

That's 20 mcm/d less going towards Europe. I don't know the pipeline configuration from Turkey, but it could be relevant.

Saturday, January 21, 2006

GFS moves back to Atlantic

On the midnight and 6am (GMT) runs the Global Forecast System has the UK back in realtively mild Atlantic Weather. However, the midday run is moving a bit colder.

The other models still indicate cold weather.

Friday, January 20, 2006

Gas Imports Crash to 1.6 mcm on Thursday

Gas Imports Crashed to their lowest at since 7th November 2005 on Thursday 19th January 2006 according to the Chairman of the Independent Energy Scrutiny Panel.

"Only 17,765.675 MegaWattHours of gas was imported yesterday", said Mr Hemming, "this is under 2 million cubic metres. We have been peaking on cold days at importing 34 mcm. This is why we are not storing sufficient gas on what should be a pretty "awash with gas" day."

"We were worried that cold weather on the continent would lead to reductions in imports and even exports of gas. It does look that this is happening. This is not helpful."

Numerical Models Come together

Numerical Weather Forecasting models are pointing towards a cold February according to the Chairman of the Independent Energy Scrutiny Panel, John Hemming MP.

"Those people who don't think we are already in a gas crisis should ask those people who are losing their jobs through gas prices what they think." said John Hemming

"However, for the gas supply issues to hit the wider british public will require a sustained period of cold weather. Numerical weather forecasting is unreliable beyond 7 days although the Global Forecast System issues forecasts up to 16 days. However, a number of models are now coming together to forecast a sustained period of cold weather starting at the end of next week."

"Russia is already suffering gas problems, but they are really having a problem with the cold. Our own cold weather will not be as cold, but we are not used to it."

"This would imply supply challenges from 29th January through to 4th February. If we start having to use short term supply then there is only 2 days supply before we hit the safety monitor buffers and have to start switching off the Combined Cycle Gas Turbines (electricity generators)."

"I talked to the government this week about the situation. They seem complacent and have misunderstood some of the figures. It is touch and go. If the weather is mild we will cope this winter, but it is looking like there is going to be a cold spell. If thte cold last for long enough then National Grid will need to run 'Exercise Ostrich' for real."

"Industry are unhappy that they are subject to disconnection without any compensation. This will exacerbate the economic damage caused by the govenment's abdication of its responsibility."

Thursday, January 19, 2006

Will February be Siberian?

The big question is whether late January or February will see the effects of some Siberian equivalent weather. Of course it will not be as cold as Moscow, but some GFS forecasts have suggested quite cold temperatures (colder than just after Christmas).

This, of course, is the issue that will affect whether or not there will be a gas crisis that affects more people than those in high energy industry.

Saturday, January 14, 2006

Gas Speech

I am always of two minds as to whether or not to write a speech. For the Energy Security debate on Thursday, I wrote a speech, but was unable to use it. Hence here it is.
=====================================================================================
We are looking at the issue of Security of Energy Supply. Energy Supply is critical to the country. If we don’t have enough energy it is like driving off a cliff.

The government’s policy on this has been as if they are driving along a cliff, wearing a blindfold and they throw away the steering wheel. Responsibility for the different elements of energy security has been divided between the DTI, Ofgem, National Grid and the market. The market does have a role, but government has a role that it has abdicated.

I have been working with various industry and energy specialists who comprise the Independent Energy Scrutiny Panel to review the assumptions behind government calculations.

One key aspect of Energy Security is the interface between Gas supply and Electricity Supply.

The reason why Gas is used for electricity generation is that it is energy efficient. Something like 55% of the energy input goes into electricity because there are two generators, one a turbine and the other a condenser system. Normal condensers manage at about 33%. The CCGT (Combined Cycle Gas Turbine) comes close to the optimum efficiency of a carnot cycle heat engine which is linked to the ratios of the absolute temperatures of the cold and hot parts of the engine.

Most gas during winter is used for heating. The contracts that people are on are generally fixed price. Hence there is no sensitivity to the spot price. The vast majority of heating gas is supplied through the Local Delivery Zones.

The consumption through LDZs is quite variable and linked primarily to temperature. On Christmas eve 209 mcm was supplied through the LDZs. The spot price was 1.0596 p/kWh. Less than a week later on 29th Jan 333 mcm was supplied through the LDZs. The spot price was 3.592 p/kWh.

The vast majority of demand is not sensitive to the spot price. Hence the spot price moves massively when the market is tight. The market is tight because of over optimistic assumptions.

Heating gas is essential for health reasons. Hence if the demand for heating gas goes up beyond what can be supplied we have to cut off industrial users.

National Grid’s figures from December gave a market leeway for electricity generation of 21%, but at the time 30% of electricity is used for gas. Hence if we had to shut off the gas generators we would end up with either brownouts or rolling blackouts.

Our first real problem is overoptimistic assumptions.

Every year a Winter Outlook report for Gas is prepared by National Grid. One of the difficulties is that the initial assumptions were over optimistic. The National Grid recognised this and reviewed their assumptions on 22nd December.

There are three main sources of gas. One is the North Sea (this includes imports from Norway) another is the Interconnector from Belgium and the third is the gasification plant at the Isle of Grain.

The table I am referring to is uses figures from the 7 days Tuesday 3rd Jan to Monday 9th Jan.

Original Review 7 day average
Max Ave
Beach 327 303 303 293
IOG 17 13 13 3
Interconnector 48 42 30 29
Total 358 346 325

It is important to note that on each of those days gas was taken from storage. Although we are not talking about massive demand they are not low demand days.
This is a shortfall of 21 mcm/d from the reviewed figures.

The Review of 22nd December accepted that the UK does not have enough stored gas to meet firm demand for the first time.

So we start out with overoptimistic assumptions.

The next problem is perverse market reaction. We do not have enough stored gas so we should be trying to store gas whenever possible. However, what actually happens is that stored gas is used before people increase imports.

There is a lot said about “liberalising the European Markets”. This is a red herring. In the past week on colder days we have been able to import 34 mcm/d. On the cold Thursday we imported 30 mcm/d. The problem is simple.

When it is warmer we should be still importing and injecting into storage. Furthermore we should be importing gas in preference to taking it from storage.

On Wednesday last week we imported 19 mcm and took 30 mcm from storage. If we can import 34 mcm then that is what should have happened. We would then have only taken 15 mcm from storage.

Storage as at yesterday morning at 6am had a total of 34 TWh of gas in it. 26 TWh in Long term and the rest in Short and Medium.

There are limits to the rate at which gas can be put in or taken out of storage. That affects how much gas the country can consume on any one day. If we hit certain limits that depend entirely on weather then we start having to cut off the gas generators with the knock on effects.

This brings me to Exercise Ostrich. National Grid ran an exercise about cutting off gas supplies because of a shortage of gas supply in September. It was called “Exercise Ostrich” – I wonder why?

We are where we are. The country is on a knife edge. If there is a patch of relatively cold weather we could end up with rolling blackouts.

The same problems exist for next winter as Milford Haven does not come on stream until much later.

It is not sufficient for the government minister to pray for warm weather. There is a responsibility for the government to ensure that we have security of gas supply. Although there is a short term cost to requiring that gas is imported rather than taken from storage, this reduces the spot price on the market and therefore, reduces the long term price of gas.

We also need contingency plans for a cold snap on how to minimise the effects of insufficiency of supply.

In the medium to long term we need to look at other demand reduction measures, but on this issue the government have abdicated their responsibility.

Sunday, January 08, 2006

UIOLI - means in theory loose it.

BP have missed using the berth at Isle of Grain. Grain LNG gasifactions have been quite low.

The saving grace is that imports via the Interconnector have run at 34 mcm/d for two days. This only happens, however, once gas in the long term storage is on maximum withdrawal.

Friday, January 06, 2006

Why Are We Failing to Re-Fill our Storage Facilities?

When the UK’s supply of gas from its offshore facilities (Beach), from the continent (via the Interconnector) and from ships from elsewhere in the world (LNG) don’t match the UK’s total gas demand gas is taken from the various gas shortages facilities around the country. On particularly cold days, such as those over the Christmas period, using gas from storage is a necessity.

The major concern for the security of gas supply this winter has been the total amount of storage available to meet those periods of exceptional demand is less than ideal. As the winter progresses and more and more gas from the storage facilities is used we may come to the point where there isn’t enough gas in storage to meet further demand.

Thus the UK needs to take every opportunity to re-fill its storage facilities when the opportunity is presented. This can happen on warmer days when gas demand is lower than the total available from Beach, LNG and the Interconnector.

For some reason this isn’t happening to the extent that it should. On days when gas demand is lower gas companies are choosing not to put gas into storage but simply import less, and bring less in from the North Sea. Clearly there is no commercial merit in re-filling the storage facilities.

This is explained in the graph below. It is evident how the opportunity to put gas into storage is lost because as the total gas demand (the blue line) drops so too does the total gas brought into the UK (the pink line). The yellow bars represent the change in the total amount of gas in storage, and thus the difference between the blue and the pink lines.

Clearly the market is failing the UK. This doesn’t mean that we should look for alternatives to the market, but that we should look at ways of changing the ways in which the market operates in order to ensure that there is, at least in times of potential shortage, a commercial incentive to bring as much gas into the UK is possible, regardless of that day’s demand.

The Labour Government has enjoyed sitting back and explaining that the market will solve the UK’s problems, failing to realise that the market cannot achieve what we need it to without the right set of rules and regulations governing its operation. The market exists to serve the people, not the other way around: the government would do well to remember that.

Thursday, January 05, 2006

What Can We Learn From the Winter Fuel Crisis of 1946/47?

The winter of 1946/47 was a particularly severe one, the worst since 1880. Had it not been so severe supply of coal to the UK’s power stations and industry would have been tight, but no-where near as tight as it was. The wintry weather increased demand for electricity and coal for heating, decreased the productiveness of the pits, and made difficult the transportation of coal from the pits to the factories and power stations. In the 1940’s coal was used for almost the same purposes as gas is today: electricity generation, chemical processes and domestic heating (both in fires and through electricity).

The are a great many similarities between the build up to the 1947 coal crisis and the build up to this winter; from the warnings of industry and experts going back as far as the preceding summer, the concerning storage deficit going into the winter months and the lower than predicted raw-material output, the use of coal in 1947 and gas in 2006 for heating and electricity generation and industrial processes, to government’s blithe assurances that everything was going to be OK.

It would be incorrect, however, to hold up the example of 1947 and try to draw some lessons from it without noting some massive differences between that winter’s coal industry and this winter’s gas industry. Two major differences are that: today the UK is reliant upon imports of gas from the continent, whereas in 1946 the government attempted to import skilled miners from Poland; and on the 1st January 1947 the coal industry was nationalised, creating a wildly different set of market conditions to Britain’s liberalised gas market, there was no price mechanism to help reduce demand and government had considerable power at its fingertips to cut off supplies to certain industries.

Throughout the summer of 1946 a wide range of sources, including some within government, had warned over a potential coal shortage during the following winter. Predicting whether the winter would be difficult or not was a tricky business, as one would have to include in one’s prediction factors as diverse as: the rate of coal extraction and the ability to import coal if needs be; total coal demand and how that demand was split between domestic, government and industrial users; and the weather. Previous winters had been difficult due to poor supply, and following the war demand was increasing rapidly. On the 24th October 1946, however, the Minister for Fuel and Power, Emanuel Shinwell, said in a speech that:

“Every one knows that there is going to be a serious crisis in the coal industry, except the Minister of Fuel and Power, I want to tell you there is not going to be a crisis in coal, if, by crisis, you mean that industrial organisation is going to be seriously dislocated and that hundreds of factories are going to be closed down.”

These reassuring words were based on poor assumptions about the weather and how much coal could be mined. Events transpired to punish Britain for these optimistic assumptions.

On the 4th December, after it became clear that supply of coal was not meeting demand as he had expected it to in October; Shinwell wrote a letter to industry asking for a 5% reduction in coal use that he predicted would make sure Britain faced no crisis. This is the final paragraph:

“If, as the Government hope, industrial consumers (other than the industries which will be totally exempted) at once curtail their consumption by five per cent., the consequent improvement in the stock position, assisted by the reduction in the consumption of coal by electricity undertakings and gas works, should suffice to enable industry as a whole to get through this winter without any serious interruption in activity.”

By February 1947, however, the really cold weather and snowy conditions hit, and coal deliveries to ‘non essential’ industries dropped right down, and industries started to close down, amongst them Austin’s Longbridge plant. This is taken from The Times of the 3rd of February 1947:

“Announcing that the Austin Motor Company’s Longbridge factory at Birmingham, which employs 17,000, will close tonight because it has only two working days’ supply of fuel, M. L. P. Lord (chairman and managing director) on Saturday said that they were faced with the alternative of working one in 10 working days or one full-week in every 10.”

On the 10th of February 1947 Emanuel Shinwell announced that there wasn’t even enough coal for the power stations: power cuts to most of industry and some domestic customers were enforced. Members of the public were asked to stop their power usage wherever possible. Such restrictions continued for the rest of the month. By the 17th February 2 million factory workers were idle due to lack of coal. This is taken from The Times of the 10th of February 1947 under the headline “Unemployment for Several Millions”:

“The drastic cutting off of electricity to industry began at midnight, and it is feared that several million workers will be idle. Except for essential services, no electricity is being supplied to industry over wide areas. Domestic customers will be without electricity between 9a.m. and noon and 2 p.m. and 4p.m. to-day”

With hindsight it is clear that had the government taken more dramatic steps in October and November to in order to reduce demand the stockpiles of coal could have been built up to provide for February. In the event the government were afraid of frightening people and did there level best to reassure the public, even though that meant using optimistic predictions. Predictions should always provide a set of scenarios across a range of factors, including potentially damaging ones, and take account of factors not performing as predicted.

In the future they may look back at the speeches of this Labour government and have similar thoughts. Do you remember the Minster for Energy, Malcolm Wicks, saying that the UK was ‘Awash with Gas’, despite warnings about the tightness of supply? As each day passes, however, a gas crisis in 2006 becomes less and less likely: although that depends upon the weather. Though the winter has been cold so far, it hasn’t been really cold. Though Beach, Interconnnector and to some extend LNG have all performed below the level expected of them in the National Grid’s Winter Outlook Report, they haven’t underperformed really badly.

We must, however, ask the government why they have failed to take demand reduction measures during October, November and December 2005. Demand reduction measures vary in their impact upon the economy and upon people’s lives. Public appeals for people to check their heating carefully would have little or no effect on the economy or on the public, but would make the government look a bit silly having to admit that they have made a miscalculation and that there are dangers ahead.

Shutting down industry is one form of demand reduction used in the 40’s. Had the government been more open about the dangers facing the UK in this winter in 2005 there would be no chance of such industry shut downs in February 2006. As it is there is still a slim chance that we will see dramatic shortages in a month’s time.

Our government is not mature enough to admit when things are getting tight, and we can assume that their plan has been to sit by and hope that the winter isn’t too cold and beach supplies don’t dwindle too rapidly. Let us hope that British business will not have to pay for their gamble.

Today Thursday 5th Jan 2006 - Energy Outlook

Electricity Usage peaked last night at about 57 GigaWatts. Tonights 5pm peak could be about 60 GW. Today's gas flow is running at about 382 mcm, but only predicted to be 369 mcm although Seasonal Normal Demand is estimated at 395 mcm.

Tomorrow is supposed to be a colder day. My estimate is that the system will cope today.

Wednesday, January 04, 2006

Tomorrow answers the Ukraine Question

It will be interesting to find out what the imports are tomorrow. Current NG predictions run at 378 mcm. This is only a few mcm short of the peak during this winter. Given that we are now during the week and NTS consumption has jumped by about 20 mcm if we have days about the same as last Thursday (remember, problems with electricity supply - NISM and minor interruptions of gas supply) then we could have a bigger problem tomorrow and Friday. The weekend should calm down, but I will be looking to see if we have to start hitting the short term storage.
DateNTSLDZ
Tues 3/172.3254
Mon 2/170.4254
Sun 1/154239
Sat 31/1240.7249
Fri 30/1249.5292
Thurs 29/1249.1333
Weds 28/1244.6342

NTS is basically big industrial particularly gas electricity generators. Local Delivery Zone is everyone else domestic, commercial and some small industrial - including our hospitals on interruptible contracts.

Last Week's Supply Interruptions

On Thursday 29th December there were three interruptions.
467191 kWh in Exit Zone NW1
129674 kWh in Exit Zone NW2 ... and
275342 kWh in Exit Zone SC4

I suppose this may have woken up those people on interruptible supply that they might be interrupted.

Britain facing fresh oil supply crisis, warn independents

What surprises me about this is:
NHS Trusts on interruptible gas contracts have begun frantically shopping around for oil supplies to heat hospitals.

The whole point about having interruptible supply of gas is that you can tolerate an interruption. I am surprised that hospitals have decided they don't need reliable supplies of gas.

This is less surprising:
"The problems are rooted in what is happening in the gas industry and the problems the gas power stations are having in getting supplies. They have increased their use of other oil products and that has meant a lot of other users are having serious issues in getting hold of supplies," Mr Maud said.


Some CCGTs can run on oil (distillate) as well as gas. The price of gas is still silly linked to the fact that the most volatile part of demand (property heating) is not responsive to price because they are mainly on fixed price contracts.

Monday, January 02, 2006

Gas Prices to Increase

The volatile spot price for wholesale gas recently has been cited as a reason for increasing gas prices to domestic consumers.

In practise where you have a mismatch between supply and demand prices rocket. The best solution to this is to reduce demand otherwise there are major impacts on people on low fixed incomes.

What I find odd is that it appears that the major shippers have not tried to hedge most of their winter gas. It is possible for next winter that a sensible approach would mean that prices would be far more reasonable.

The purchasing price for gas moved dramatically last week.
DatePurchase Price p per kilowatt hour
Monday 26th Dec1.2328
Tuesday 27th Dec2.4704
Wednesday 28th Dec2.5103
Thursday 29th Dec5.1223

Anyone short of gas for Thursday would have had all sorts of problems. This issue and the decision not to go for energy security because of the cost has actually resulted in increased costs for consumers. At the same time Gordon Brown has increased the tax take - again this impacts consumers. It is also likely to result in decisions not to invest in projects again impacting consumers.

Shell Cuts Exploration Investment in North Sea 17th Dec 2005

Sunday, January 01, 2006

"The Perfect Storm"

Early indications are being forecast of a potential combination of factors that could cause difficulties in the UK Energy Market next Friday according to the Chairman of the Independent Energy Scrutiny Panel, John Hemming MP.

"The first ingredient to this particular recipe", he said, "is the general tightness of the UK's Gas and Electricity Energy supply and the lack of action from the Government."

"The second ingredient is overoptimistic estimations of supply."

"The third ingredient is Russia cutting down gas exports via the Ukraine - which is happening today."

"The final ingredient, which is not yet certain, is forecasts of another cold spell associated with snow starting on Thursday, Friday this week."

"Imports via the Interconnector from Belgium were relatively high at 30.1 mcm/d on Thursday. They fell back to 18.1 mcm/d on Friday. On Thursday 57 mcm were taken from storage. The impact of Russia's dispute with the Ukraine could be that imports cease or even exports start - we just don't know."

"On Thursday the National Grid issued a NISM indicating a shortage of electricity supply margin. This makes it very clear how tight the situation is. Normal weekday demand for gas is about 50 mcm greater than that during the Christmas week. We could, therefore, be looking for 137 mcm from storage on Friday. That is more than storage can provide and would lead to cuts in electricity generation."

"Analyses of the 18z and other charts from the US Global Forecast System overnight indicate that there is a reasonable chance of another cold spell including relatively heavy snow at the end of the week. "

"As usual this primarily depends upon the weather which is difficult to forecast at what is currently 6 days notice."

"The government have a responsibility to look urgently at the dispute in the Ukraine and act to protect the UK's imports from Belgium."

Note for editors:
The figure of 137 mcm comes from 50 increase in demand + 57 last Thursday's calculation + 30 problems in import.

Russia turns down the tap

This is a link to a BBC story about Russia turning down the Gas tap to the Ukraine.

It will be interesting to see how this is handled. The Ukraine has some indigenous supply. It does, however, supply a lot of Russia's gas to Europe. Whether the Ukrainians will extract from the supply for themselves is not clear.

Gas moves more slowly than electricity - obviously. In the UK it takes about a day to cross the system. How long it will take for any impact of this to hit the Interconnector to Belgium I am not sure, but it could be 2 days. On top of that we have vague hints from the GFS of reducing temperatures leading to a "snow event" on Friday.

All in all this may be a time to watch out for that which emanates from the fan.
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