UK natural gas storage: The politics, and the pundits

Gas storage has, unsurprisingly, not featured as a prominent issue in the UK general election campaign. The public only notices its gas supply if it fails to arrive at the turn of a knob, and when the bill comes. There is also, as discussed in an earlier post, a remarkable degree of consensus between Labour and Conservative parties about the right way forward. (The Liberal Democrats are also broadly in agreement, although on this as on many issues there is rather more difference between them and the other two parties than there is between Labour and Conservatives.)

However, while the politicians may be all of one mind, and looking for second-order points of difference so they can attack each other, there is a much greater gulf between them and some of Britain’s leading energy experts.

In comments to that previous post, Nick Grealy of the website, attacked Labour and the Conservatives in particular – he has had some kinder things to say about the Lib Dems – over the their refusal to acknowledge the trasformative potential of US unconventional gas production. He argues that British politicians in general are too hung up on gas storage, and have been propagating some alarmist misconceptions about the country’s vulnerability to gas supply disruption.

He wrote:

“Simply put, gas storage is an underground cavern linked directly to the gas transmission network. Simply put gas supply comes out of underground caverns linked directly to the gas transmission network.

The North Sea is Britain’s storage, but with the substantial benefit that we don’t pay for it until it comes out of the ground. Moving it onshore means someone has bought it, which means according to supply and demand the price goes up. France and Germany do not have much domestic supply, so in those markets it is prudent to take gas out of other holes in the ground (North Sea, Russian, Dutch and Norwegian) and put it in their holes in the ground.

Saying we only have so many days in storage compared to them is meaningless.Admittedly if the 9 import terminals simultaneously failed we would be in deep trouble. But it would take about three explosions, a couple of terrorist attacks and four meteorite strikes to cause this.”

He wrote in response to another comment from Patrick Heren, the doyen of Britain’s gas market analysis, who attacked the FT for circulating flawed information.

Heren wrote:

“The UK has less storage capacity than most other European countries because it has always had far more flexible production capacity, in the North Sea and the Irish Sea. That is declining but we are still far better off than the Germans or French. Not only that, but – thanks to the competitive market about which even the Tories have forgotten – the relatively small storage capacity we do have is used in a dynamic and flexible way. Gas is extracted from storage when the price is right for consumption and put back in when the price is right for storage. In other words, each winter there is a multiplier effect which makes a nonsense of the wooden analysis put forward by the various parties’ energy spokesmen’. Ignorance is not an excuse.”

In spite of the arguments of these authorities, however, I think the politicians are on to something on this one. Domestic production does indeed explain why the UK has in the past had relatively less gas storage than France or Germany. Yet the UK’s gas production from the North Sea and Irish Sea has been in decline through the past decade, and that decline is likely to continue or even  accelerate. By the end of the decade, Britain could be importing 80 per cent of its gas – compared to about a third today – and will look more like France and Germany than it does today.

If you believe that Britain does not need a lot more gas storage, then you will have to persuade Centrica, Eni and several smaller companies, because they see good commercial reasons to invest in large new facilities, and have projects under development.

The politicians may say some silly things, and the remedies they propose may be flawed. But I am not so sure that this gas storages really a non-issue.

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