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.


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