The penny is dropping in government. Britain, even in rapid energy transition mode, will still need a lot of gas in the years ahead – and needs to know how the gas will arrive.
It could hardly be otherwise when there are 24m households with a gas connection, largely for heating, and the pace of heat pumps adoption is miserable. Last year gas comprised about a third of the UK’s overall energy needs. Though annual consumption is in decline, the days of peak use during a bleak midwinter can still be as high as ever.
The difficulty has been getting ministers to focus on the combination of declining North Sea volumes (about 40% of supply), skimpy levels of gas storage and limited capacity for importing the stuff via tanker. Until now, the default position under successive governments has been that the market will provide.
A scary report from the energy system operator last November, however, warned of “an emerging risk” to gas supplies at the turn of the decade if an important piece of infrastructure, such as one of only three terminals for importing liquefied natural gas (LNG), were to be offline during a cold snap. Now comes the government’s formal response.
Or, rather, it’s half a response since this was an interim version cloaked in the language of “more analysis needed”. But one significant shift was reasonably clear: the government thinks it will probably have to intervene to ensure sufficient gas capacity and infrastructure is in place. That could mean contracts to underpin more storage, more import terminals or something else.
There are three observations to make about this report. First, ministers need to hurry up and decide what they want, as opposed to repeatedly describing the menu of options. “We have a responsibility to the millions of households that will be heated by gas for years ahead, the industries that rely on it for essential production and the power system in which gas continues to play a key role,” declared energy minister Michael Shanks. What he did not do, however, was set out a timetable for choosing what kit is needed and by when.
If, for example, regeneration of Centrica’s Rough storage site off the coast of Yorkshire is one solution, that £2bn project won’t happen overnight. Nor could alternative onshore or offshore storage facilities, or even floating offshore import terminals, be summoned immediately. If the 2030 risk of running short of gas is real, get on with it.
Second, what about this winter? That challenge wasn’t mentioned. “Swift and decisive action is also required to address potential near-term challenges,” said Jon Butterworth, chief executive of National Gas, which runs the gas network, back in February. While he added that “work is already well under way,” it is hard to find anybody who can describe what has been done in response to the disruption to global LNG supplies.
Centrica has not been injecting gas into Rough this year because it can’t make the finances stack up, meaning Britain will enter winter with even less storage than usual. In the meantime, continental European storage, which Britain normally taps via interconnectors during the cold months, is projected to be lower than average for Hormuz-related reasons. And wholesale gas prices are rising, amid anticipated global competition for LNG cargoes.
Third, Tuesday’s report was not about North Sea policy, but represented another reason to approve the Jackdaw gasfield. It would, after all, be bizarre to outline a potential supply crunch that has been caused, in large part, by growing reliance on imports, and then disallow a field that will make the problem slightly smaller. Jackdaw will account for about 6% of domestic North Sea gas volumes and could be up and running in time for winter. Whatever the awkward “optics”, there is another decision to make soon.
