Thursday, March 16, 2006

Foundry Gas Problems

I have been told that some West Midlands Foundries are not getting the gas they are supposed to get. I need to check this further.

In the mean time Wednesday actually saw a small amount of gas back into storage although today's demand is estimated at ~30 mcm greater than yesterday.

Demand down by 20-30 mcm

For each 10 mcm of demand reduction that is 70 mcm fewer taken from storage over a week. It looks now as is potentially the increase in price has reduced demand by about 25-30 mcm or even over 30 mcm.

The job losses and layoffs caused by this will be substantial. The upside is that we are probably safe from a gas emergency until beyond Tuesday next week. After then, however, depends upon the weather - as usual.

It, obviously, asks the question as to whether this is really a sensible way to handle imbalances of supply and demand.

Wednesday, March 15, 2006

Price reduces demand ... a bit

That is not surprising. You would expect an increase in price to reduce demand. As a very rough estimate demand is down by about 10-20 million cubic metres as a result of the price going up by a factor of 4-5. (ie 400% increase in prices).

That is a reduction in demand of about 3-6%. When the market is as tight as it is then that is important, but the big question is whether it is enough. The CCGTs will have moved to dual shifting where they only cover the peaks in demand and possibly started going through their stocks of oil.

This demonstrates how unresponsive to the spot price short term demand is.

The weather forecasts for next week are cold as well. The North Atlantic Oscillation is negative.

The largest demand from the local delivery zones is 335 mcm (on 2nd February).
Average production from Beach and IOG over the last 7 days (from 2 days ago) is 295 mcm. Average imports via the interconnector have been 34 mcm. This gives a total of 329 mcm. If, therefore, we hit a really cold day next week we would need some gas from storage to even provide the LDZ gas requirements.

Still the situation will be clearer over the weekend. Current forecasts of tomorrows demand imply that tomorrow will be OK.

Gas Urgent Question in House of Commons

The link is to the Urgent Question debate that I called for yesterday in the House of Commons. I am not going to extract anything from it as it is best read as it is.

There are two views in the high energy industry (people that study gas issues in depth). One is that we will just scrape by and not have an emergency, the other is that we will have an emergency.

In a sense that demonstrates how we are on a knife edge. Tomorrow will be colder. We may encounter constraints on extract from storage by Friday - which will cause more rapid depletion of short term storage as MRS will only cope with 10 mcm/d.

As usual it depends upon the weather.

Tuesday, March 14, 2006

Gas continues to be taken from storage, emergency still 'likely'

John Hemming MP, Chairman of the Independent Energy Scrutiny Panel, challenged the government over their failures in dealing with gas supply in the House of Commons.

As a result of Mr Hemming's "Urgent Question", the Secretary of State for Trade and Industry was summoned to the house to answer MPs questions about the crisis in the gas market.

"When people get their gas bill", said Mr Hemming, "they need to understand that it has gone up through the failures of Tony Blair and the Labour Government. Their cavalier attitude to the security of energy supply is hitting people hard in their pockets. Many thousands of people will be losing their job as a result of the UK having gas prices for April something like 50% more than the USA."

"The government have failed to ensure that the market rules established by Ofgem ensure that people import gas on milder days and put it into storage. On the colder days, then, we can neither import gas nor can we get it from storage because it has not been stored."

"Yesterday another 425 GWh (38 mcm) was taken from Medium and Short Term Storage leaving only 2610 GWh (a seventh was taken out in one day). As the gas continues to be depleted from storage the maximum output is also depleted. We have perhaps 3 more days at maximum from Medium Range Storage before MRS is limited to 10 million cubic metres a day."

"Whether we have a formal gas emergency or not depends almost entirely upon the weather. The current cold snap is expected to continue through into the weekend. The North Atlantic Oscillation is also expected to be negative for some time. This will also encourage colder weather."

"We are cutting our safety limits to the bone. I do not expect us to have to disconnect any domestic customers, but I am very worried about the risks the government and regulators are taking with the UK's energy supplies. The problem with delaying action until the last minute is that the action that is taken has to be more severe."

Tuesday looks OK now

The situation for gas supply remains tight. Prices have rocketed both for this week and next week.

It looks like about 180 GWh was taken from Short Term supply on Monday's Gas day (we will be certain later today). This leaves about 550 GWh. MRS will have been running at max although as this gradually gets depleted its ability to deliver reduces.

The interconnector is reported to have picked up a bit. The weather, however, is still predicted to be coldish.

Monday, March 13, 2006

GBA Trigger shows error

The fact that Tuesday could see a Gas Emergency, but does not stimulate a Gas Balancing Alert shows that somewhere in the system of monitoring gas supply and demand there are serious problems.

The Trigger for a Gas Balancing Alert should be that beach, imports plus medium term storage is insufficient and there is a call on Short Term Storage. However, even a 320 GWh call on STS from Sunday did not cause a GBA.

It is all rather odd really.

More background information

There are always a mixture of problems in supply. That is why caution is needed before people assume guaranteed levels of supply.

Statoil ASA, Norway's largest oil company, said today its Troll A platform in the North Sea was producing 10 percent below its capacity because of unspecified difficulties.

Malfunctions at the platform, which pumps a maximum of 110 million cubic meters of gas a day, had reduced output in February at Troll, the largest gas field in the North Sea. The field, which accounts for about 60 percent of the gas found off Norway's coast, was slated to resume full output on March 8.

Norsk Hydro said last week that production from the Oseberg field would remain at reduced levels during the weekend after faulty equipment curtailed production.

ConocoPhillips, the third-largest U.S. oil company, said it will shut its Ekofisk field in the North Sea for four days this week, halting some 600,000 barrels a day of oil and gas production.

About 375,000 barrels of crude oil a day from the Ekofisk area will be shut down in the early hours of March 17, Ingvar Solberg, a spokesman for ConocoPhillips in Norway, said in a telephone interview today. Gas production from Ekofisk and oil and gas from several neighboring fields also will be halted, bringing the daily production loss to about 14 percent of Norway's daily output

(from bloomberg)

Phase 1 Gas Emergency 'likely' this week

A Phase 1 Gas Emergency is now looking likely and may occur as soon as Tuesday 14th March according to John Hemming MP, Chairman of the Independent Energy Scrutiny Panel.

"Sunday's gas consumption was 357 mcm and involved taking 320GWh from Short Term Storage leaving 724GWh. Today's demand according to the National Grid Website is predicted to be 380 mcm. All else being equal this would involve taking the maximum 526 GWh from Short Term Storage leaving just under 200 GWh. Tomorrow's Gas Demand is predicted at 372 mcm which (all else being equal) would require about 400 GWh from a store of Short Term Gas which only has 198 GWh in it. This would cause a Phase 1 Gas Emergency with disconnections of large users."

"Obviously one would expect some demand reduction as a result of the Gas Balancing Alert. It is also possible that imports via the interconnector will pick up. The cold weather, however, is predicted to last a while longer. Medium Term Storage is likely to be running below 30% by the end of Tuesday's Gas Day. It is, however, now likely that there will be a gas emergency this week (likely estimated as a probability of over 50%) "

"Prices started rocketing on Sunday and have spiked intraday today at £2.55 per therm. This is symptomatic of the nature of the gas market where most demand is not sensitive to the spot price. That is why the demand reduction from the Gas Balancing Alert is likely to be lower than expected by government and Ofgem."

Gas Balance Alert Declared

A Gas Balance Alert has now been declared. Lets see what that does to demand.

Sunday, March 12, 2006

GBA should be declared for Monday

The demand prediction at 4pm is 385 mcm and the trigger level is 377. There should be a gas balance alert. I have emailed National grid to ask them why there isn't one.

This, I suppose is the big test.

Saturday, March 11, 2006

Import into Storage - current status

The figures are available on the National Grid website which is good, but does not seem to fully reconcile. Some day I may talk to them about this to try to find out where the variations are.

The Country is currently in a position whereby the real risk of cold weather beyond that which the gas supply can cope with is being ignored by the formulae used to handle safety margins.

Furthermore certain assumptions built into determining when we should declare a gas imbalance are wrong. Hence last week when there should have been a gas balance alert declared it was not.

The final point is that there are no market forces which encourage people to import gas into storage. Noone wants to take unreasonable risks with their money so importing gas into storage does not happen in any real quantity. I raised this on Monday with Ofgem who indicated that they did not see this as a problem.

I look at it on the basis of a risk analysis. The risk for the country of having insufficient stored gas warrants a bit of insurance. The insurance is a premium for import into storage.

A further issue, of course, is that long term storage is offline and likely to stay so beyond the end of April. Not a predictable situation, but the country should never have all of its eggs in one basket.

During March a net 1,516 GWh has been withdrawn from Medium Term Storage taking it down to 2,713. 664 GWh has been taken from Strategic Short Term Storage taking it down to 1,044.

The 7 day average from Beach and IOG runs at a lowish 295 mcm/d.

Now it appears possible that the weather may turn coldish again.

Thursday, March 09, 2006

Weds Demand low, but still gas taken from storage

Wednesday's gas day is a good example of things not really working as they should. Demand was a relatively low 319 mcm (although I have found that this is never as clearcut as you would expect). Imports, however, dropped to 303.5 Gwh (about 27 mcm). This meant that 30 GWh (about 3 mcm) was still taken from storage.

It is not certain that this will be a problem. Again, however, there are risks where the upside is negligable, but the downside of a gas shortage is material.

Short Term Storage (LNG) is now at 1044 GWh (about 95 mcm). The maximum extract rate is at 526 GWh/d. Hence it is now below the 2 day threshold even if the safety monitor is zero.

Medium Term Storage is at 2645 GWh (about 250 mcm). This is about 36% of capacity.

Long Range Storage is still not working properly although 5GWh came out yesterday.

Tuesday, March 07, 2006

Wot no Gas Balance Alert

The interesting thing about yesterday and today is that at times when short term storage has less than 2 days above Safety Monitors then there should be a gas balance alert when the amount of gas used is above the trigger.

The trigger is supposed to be calculated on the basis of what gas comes from sources other than short term storage. However, we are below 2 days and gas is being withdrawn from short term storage.

Hence there should be a GBA, but there isn't.

Luckily the weather looks good enough ... just about.

Sunday, March 05, 2006

GBA Trigger should fall to 376 mcm/d

With the removal of gas from Short Term Storage on Saturday (only 50 GWh actually), the number of days at max rate above Safety Monitorof STS is now 1.9. This takes the GBA Trigger down to 376 mcm/d. Monday's predicted demand, however, is 365 so no Gas Balancing Alert as yet.

The NAO is still quite negative although the ensembles are trying to pull it positive. Thursday and friday might be cold (although not that cold)

One question is how much gas can be stored to bring up the levels in storage. The figure for Saturday's demand looks anomalous.

Friday, March 03, 2006

GBA Trigger Adjustment Close

If 172 GWh is now taken (possibly today) from Short Term Storage then the gas balancing alert trigger figure should be reduced from 425 mcm/d to 376 mcm/d. The leeway on this is only 172 GWh (although the Safety Monitor will continue being reduced)

That means a gas balancing alert would be close on any of the colder days of this week (but just inside the figure).

Thursday continues extraction of Strategic Storage

172 GWh (about 10% of it if it were full) from Short Term and 255 GWh from Medium Term. Probably the weekend will see a drop in imports and continuing use of Medium Term. Luckily for the UK the weather gets warmer next week.

Thursday, March 02, 2006

NTS Demand reduced by 20mcm/d?

It looks like NTS Demand is running at more like 55 mcm/d rather than the normalish 75 mcm/d. The figures never seem to properly reconcile (one of the problems with the gas market, partially linked to the main unit being volume rather than energy).

This means that aggregate demand probably doesn't do the normal weekend shift during the current circumstances. That causes a bit of concern, but even if we end up using 50% of Emergency Gas by next Wednesday we will still have 50% left and things should start getting warmer.

Imports are looking a bit low. I have always thought some shippers could end up having financial problems that would cause odd activity. Still although I would not allow this level of risk, we have to rely on Lady Fortune because that is government policy.

First material call on emergency gas

The Gas supply situation remains "tight" according to John Hemming MP, Chairman of the Independent Energy Scrutiny Panel.

"We have been lucky that the weather was not as cold as was expected", said Mr Hemming, "The North Atlantic Oscillation is, however, negative. This is having the effect of continuing the cold weather into next week. It is predicted that the NAO will move in a positive direction soon, however. This will allow milder weather to return."

"The bad news is that Long Term Storage will remain offline until at least May. Efforts to restore full power to the Rough facility are continuing. Although bad weather is hampering safe access to platform 3b, and adversely affecting Centrica's ability to continue investigations and plan detailed recovery works, their initial assessment of the site has revealed that a significant amount of the cabling in the vicinity of the fire has been damaged and will need to be replaced before normal operations can resume. "

"The gas market will remain tight, however, going into March. Interruptions of gas supply started on 28th February and gas has now been taken out of Short Term Strategic Stores of Liquid Natural Gas. 6 Gigawatt Hours were withdrawn on Tuesday. 131 GWh on Wednesday and probably about the same will be withdrawn today. This would mean about a quarter of the emergency gas supply will have gone by the end of Friday's gas day. Over the weekend, however, we should be able to relax and it is now unlikely we will run out of emergency gas next week. However, as usual this depends upon the weather."

"It is unusual to draw on short term strategic supplies this shows the fragility of the UK gas supply situation."

"National Grid have also updated the Safety Margin Calculations (Safety Monitors). I welcome the fact that they have done this. I raised concerns about this earlier this week with the Health and Safety Executive and National Grid updated the calculations on 1st March."

"I am unhappy that the country is getting so close to a gas emergency without recognition from government that the market is operating at times in a perverse manner. When the weather gets warmer we should aim to refill our storage, but instead imports are cut."
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