Monday, February 27, 2006

Sunday keeps on withdrawing

Net Demand was 347 mcm. Imports dropped again to 27 mcm and 13 mcm was withdrawn from storage.

Forecast demand for today is actually only 370 mcm (at the time of writing), but the weather is still forecast to be bitterly cold for a number of days - starting really tomorrow, but then getting colder and staying cold until after the weekend.

I am really not sure about the methodology of calculating the safety monitors in this circumstance - there is some elasticity in the storage in the pipes, but that is under a day's usage.

The key safety issue with Gas is that people have to be cut off rather than have low pressure (low pressure gas may go out or create CO rather than CO2). Hence there is a need for backup storage to keep up the pressure. The trunk demand of about 60-70 mcm can be cut off quickly, but generally the rest is not differentiated.

If demand really rockets, therefore, we end up in a situation in which the total demand can tax supplies. This is where short term storage gets used.

Sunday, February 26, 2006

Saturday reverts to Type

Saturday's demand was relatively low for this cold period at 343 mcm. Imports sadly dropped, however, to 31 mcm which meant that still 11.2 mcm was taken from Medium Term Storage.

Although the real problem we face this week (if one happens, which depends upon the weather) will be the depletion of short term storage and possibly a threat to the capacity of the system, it remains that had we imported the maximum so far of 46 mcm then we could have injected 5 mcm rather than withdrawn 11 mcm.

Today is forecast to have a higher demand at 357 mcm. Tomorrow is currently forecast at 382 mcm. Later in the week could see a record demand for this winter which so far has peaked at 402 mcm.

Saturday, February 25, 2006

Will JIT become JTL

Just in Time is a good mechanism for reducing the capital requirements for any activity that requires stock. JIT can, however, become Just Too Late under some circumstances.

We will not know what will happen this week with any certainty in part until it has happened.

Collating the different figures for the gas supply market occurs slightly in arrears. I normally have a reasonably good view about 60 hours after the end of a gas day. The first figures released are the storage and linepack figures.

Yesterday a small amount came from short term storage and a teeny bit from long term storage (flushing the pipes still) and 159 GWh came from Medium Term Storage.

I am really not sure that the methodolgy currently used for calculating the safety monitors is reliable in the cirumstances and have made that point to National Grid and the Health and Safety Executive.

All in all I think we really sail far too close to the wind and as a consequence could capsize. This, however, will not be come widely clear unless there is a serious problem beyond the prices going haywire (which is already a material problem).

With a bit of luck we might even inject something into storage today and tomorrow. Then comes the real challenge (according to the weather forecasts)

Forecast Temperatures

At the time of writing the following is forecast for the UK average temperature (see link which is updated every 6 hours).

On this basis Weds/Thurs/Fri next week go into uncharted territory.

Friday, February 24, 2006

Statements by Centrica Storage

These explain where a small amount of gas may have come from.

Force Majeure Update 24 February 2006 Part 1 Published: 24.02.2006 12:02

Rough Update

Update on Rough Incident

The purpose of this notice is to update Customers and Market Participants on the progress of the investigation into the cause of the incident at Rough on 16 February 2006 and our current plans to repair the plant and resume normal operations.

Four separate teams have been established and are working on:

• Investigation of the incident and establishing its root cause,
• Restoring power and support services to platform 3b,
• Damage assessment and
• Development of recovery and reinstatement plans.

Further temporary generators are also being shipped to the platform as part of the plan to restore full power and services. Full power will allow us to increase manning levels and provide the services required for the detailed damage assessment, implementation of recovery plans and, ultimately, reinstatement of normal operations. We have now purged and depressurised gas from the Rough platform into the NTS.

At this time we have no more definitive information on the possible duration of the outage. Our initial estimate that Rough is unlikely to be available for one month remains unchanged. We would re-emphasise our statement of 20th February that this estimate is based on a preliminary assessment of the scene and is subject to change.

Force Majeure Update 24 February 2006 Part 2 Published: 24.02.2006 12:02

By the end of next week (3 March 2006) we hope to be in a position to report further on our recovery plans. If so, we will then be able to provide an updated assessment of the likely period of the outage.

In any event we will continue to keep you updated of any material changes or developments as appropriate.

Prior to the resumption of normal operations, integrity and verification checks will take place. Appropriate sign-off will be required from the Independent Competent Persons involved and the Health and Safety Executive. We can confirm that the Health and Safety Executive visited the platform yesterday, and will continue to be involved pending the resumption of full operations.

The nature of the incident, and indeed the nature of investigations into all such incidents, means that it is not possible at this time to accurately predict the duration of the investigation into the root cause or its outcome.

Bruce Walker
Managing Director
Centrica Storage Limited

Safety Monitor Calculations

I had a response from the Health and Safety executive today about the Safety Monitors. They said that National Grid are not recalculating them. That does not seem sensible. 45 mcm is not much of a safety cushion if we enter into emergency mode. 200 mcm (the total of the Long and Medium term) is more reasonable.

The weather forecasts are pointing to particularly cold weather next week still. A very small amount of gas appears to be coming from Long Term Storage, (1 mcm). That, however, could be some form of recording error.

Wednesday, February 22, 2006

Rough Closure an analysis

The link is an analysis of the impact of the closure of Rough. Basically we managed 402 mcm with Rough whilst cutting into Short Term Storage. Peak supply including short term storage is about 380 mcm for a couple of days.

In particular there is a safety problem without the cushion of storage. However, we need to keep an eye on weather predictions on Mon/Tues/Weds. I think we will cope through the weekend particularly as the interconnector is doing quite well.

Rough closed for a month !!!

The fragility of the UK Gas Supply system has been highlighted by the closure of the Rough Storage Facility possibly for a month.

"The weather next week is predicted to be cold enough to challenge the normal gas supply situation," said John Hemming MP, Chairman of the Independent Energy Scrutiny Panel. "However, with the cessation of supplies from the Rough storage facility we are now in a much tighter situation."

"The interconnector from Belgium is actually doing quite well importing 45 mcm/d which is far more than was previously the case. This demonstrates that the arguments about market liberalisation are not the key arguments. However, knocking out Rough cuts supply by about 45 mcm/d. This means that yesterday 280 GWh (compared to a quoted maximum of 284 GWh) was taken from Medium Term Storage."

"We have 19.3 days of Medium Term Storage but far less short term storage. I expect that today there will be gas taken from Short Term storage. This has a maximum flow rate of 526 GWh, but there is only 1724 GWh in Medium Term Storage. A rough guess would indicate that today 150 GWh (10%) of Short Term Storage will be used. We will know that figure late tomorrow."

"Parliament is currently on half term, but it could quite likely return to quite a serious gas supply problem."

Friday, February 17, 2006

Massive Gas Price increases

Unsurprisingly the price increases in the wholesale market are now feeding through into the retail market.

We are now encountering the next phase in pricing of fossil fuels. As they become scarcer then the prices increase. What is needed is serious effort to bring demand properly under control so that there is a balance between supply and demand.

In the case of the UK market for gas, however, there are particular problems that drive gas prices up beyond that on continental Europe.

I am expecting fuel and the pricing of fuel to become one of the key political issues starting this year. The government have been lucky to avoid a real emergency in gas supply. Although it is still in theory possible for the weather to turn really cold and an emergency occur I would be quite surprised given the weather so far if this happened this winter.

Next winter, however, is a different issue. There will not be any substantially greater supply and the North Sea supply will go down.

Sunday, February 12, 2006

Energy Crisis Hits Plastics Industry Hard

The United Kingdom's Plastics industry today laid bare the full
consequences of continuing rises in its energy input costs.

Peter Davis, Chief Executive of the British Plastics Federation, the
industry's top trade body, said that a survey recently carried out
amongst member firm revealed that 44% of companies were not able to pass
on the increased costs to their customers in their selling prices.
"Last October member firms incurred average increases of 58% for gas and
56% for electricity. Many firms were faced with a staggering 100% rise.
Companies will go to the wall if they cannot secure any relief from
this. Meanwhile our competitors in Europe, with unliberalised energy
markets are paying less and are rubbing their hands at our loss of
competitive advantage".

The UK's Plastic Industry, a strategic sector for the UK economy,
supplying all branches of business ranging from automotive and
construction to the retail sectors is a reliable indicator for the
performance of British business as a whole. "This is a £20 billion
turnover sector whose products help customer industries become more
efficient'', said Davis, ''yet recent energy increases with more in the
pipeline are pushing it to the edge of a precipice".

The BPF's survey also reveals a loss of jobs on a large scale directly
attributable to sharp energy cost rises. 48% of respondents to the
survey said that they were being forced into making redundancies by an
average of 6.5% of their workforce. Davis said "This is an industry
largely of small and medium sized firms. Any one company making
redundancies on such a scale will not make headline news but the
cumulative force of the losses is remarkable. We are looking at over
7,000 job losses nationwide in the plastics industry''.

Investment in the future has also been hit hard. The survey revealed
that 54% of companies have scaled down their investment plans by an
average value of 31% as they struggle to pay their energy bills. Davis
commented that investment in the industry had already declined to
historically low levels and that many companies were cutting costs to
the bone just in order to survive.

Not surprisingly some companies are losing faith in the UK and, where
they have some flexibility, are seriously examining re-locating their
manufacturing to elsewhere in Europe or the rest of the world. Some
10.5% of firms were in this category. Davis concluded by saying that
"International groups based in the UK, and which have made the UK
Plastics Industry a world leader, could well chose an offshore location
for new investments. This will take the edge off growth in key sectors
of the business and will further underline the lack of a level playing
field between the UK and the rest of the Europe".

(release dated 9th Feb)

Sunday, February 05, 2006

Consumer Gas Price Increases - why it is the government's fault

The Consumer Gas Price increases arise from the increases in the spot and forward prices of gas. The increases in the spot and forward prices are because the government have abdicated responsiblity for balancing supply and demand to the market. Supply is too little and demand is not managed. Hence we have massive spikes in the price and increases in spot and forward prices.

It is very easy to demonstrate perverse market reactions. At the time of writing the National Grid's website is not giving out all of the information.

The odd thing is that if there was an effort in the market to ensure stability then the prices would be on average much lower. Gordon Brown's solution, however, is to zap on another tax.

Personally I prefer a scheme of managing demand through a tradeable domestic quota that would be far fairer than price rationing of domestic consumption.

That, however, is not the issue today. The issue today is a complete mess in the gas market. This is causing:
a) Job Cuts,
b) Price increases for commercial and domestic customers
c) The risk of interruption.

The weather forecasts today seem to let the government off the hook. However, we really don't know yet where things will end up. The real problem (and one of the causes of the price increases) is that when demand goes down we reduce imports and keep taking out stored gas.

This could cause a substantial problem in March and I am not sure that the methodology used by National Grid for calculating safety monitors will stand up to that process.

Still it remains that February is likely to be quite cold, but it does not ... at the moment ... look like it will get as cold as last Thursday or the Thursday after Christmas. It is, however, a silly risk for the government to take.

Saturday, February 04, 2006

Arctic Blast possible

The numerical forecasters are now inclined towards Arctic Northerly winds from Wednesday(ish). Clearly that is in the not so reliable part of the forecast. However, it has the potential of tightening supply.

The important evidence is that we start hitting short term storage at 400 mcm. In theory the maximum withdrawal from STS is 48 mcm (and that's for 2 days).

When National Grid do their calculations for the firm and safety monitors they also look at maximum demand.

The calculates in December were
Max demand 4481
Non storage 3799
Storage 1201
ie supplies of 5000 GWh (divide by 11 for mcm roughly)

The problem is that in practise it looks more like 443 is the max supply dropping to 398 after 2 days.

I have contacted the Health and Safety executive about this. I still don't think we need to panic as yet, but I really am unhappy about the risks the government are taking.

Friday, February 03, 2006

First call on Short Term Storage - peak demand, peak imports

The cold weather currently hitting the UK has resulted in the first call on Short Term gas Storage yesterday according to John Hemming MP, the Chairman of the Independent Energy Scrutiny Panel.

"We managed to import a pleasing winter maximum of 41 million cubic metres of gas from Belgium. That is substantially more than has been the case previously. However, for some reason Medium Term Storage was unable to run at its maximum quoted rate of 284 GWh with only 235 GWh taken from Medium Range Storage. 62 GWh (6 mcm) was, therefore, taken from Short Term Storage."

"The total demand was 402 which is a maximum for this winter. "

"Where the UK goes from here depends, of course, on the weather. The North Atlantic Oscillation is currently slightly negative and numerical forecasting is predicting weather that gets slightly milder before falling cold in the middle of next week."

Thursday, February 02, 2006

MPs generate enough Hot Air

The Italian Government has called upon Italians to turn down their thermostats by 1 degree centigrade. John Hemming MP the Chairman of the Independent Energy Scrutiny Panel has said that "we should consider what the Italians are doing."

"I shall be writing to the Seargeant at Arms to ask for the temperature to be turned down on the parliamentary estate. After all MPs generate so much hot air themselves I wonder if we really need that much heating."

"The government do not want to admit that there is a gas problem. There have been some adverts running on the TV talking about turning down thermostats. It is important that the government come clean and admit that there is a danger that the UK could be short of gas. If they are honest with people then there is a greater chance of a public response."

"One degree centigrade can reduce demand by 20 million cubic metres in a day. Yesterday's demand was lower than forecast at 392 mcm, but it was still a record for this winter. Today's forecast demand is 20 mcm greater than that. We coped yesterday in part by reducing the amount of gas in the pileline by 7.3 million cubic metres. We did take 14 mcm from medium term storage as well as the maximum from Long term storage."

"Today's predicted demand is 413 mcm, but we don't know as yet what it will end up as. This will only be clear by the end of the gas day which is 6am tomorrow."

"It remains possible that the government will get through this winter without having to admit the truth. They are "in denial" about the severity of the situation which is on a knife edge. If I were to bet on an evens bet as to which way things would go I would think that we will cope. However, the risk is not worth taking."

Gas Supplies being Interrupted

The big day for interruptions was in fact 31st January 2006 with almost 3 GWh of interruption. Although peak demand so far was on 1st Feb there were fewer interruptions.

These interruptions are "business as usual" interruptions where people who have interruptible contracts are interrupted.

The problem in London was not about gas supply, but instead about a problem with a water main. The impact of shutting off 1,500 domestic consumers shows the importance of security of supply, however.

Weather is expected to get milder. Today's demand is predicted to be over 400 mcm, but may tail off at the end of the gas day (the gas day ends at 6am).
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