28th August 2011

  Increasing Import of Gas Impacting Security of Supply
Excellent report on prospects for 2025 from Oxford Institute for Energy Studies

A well written report by Howard Rogers [1] challenges the optimistic perspectives of the White Papers on the future UK energy supply.

The supply of gas is the common thread in the report with seasonal variations and storage facilities as key issues.

Between 1970 and 2000 the gas supply system was established and developed to cover about 40% of the primary energy consumption in the UK. In 2000 the country was self-sufficient in gas. Seasonal variation was included in the supply contracts or absorbed by depleted gas fields. The need for onshore storage facilities was modest.

A decade of increasing vulnerability
A significant change developed from 2000 to 2010. The British production of gas fell to slightly above half the level in 2000. Additional supplies had to be imported from Norway, from the Netherlands and as LNG. Due to poor storage capacity (in UK about 5% of the annual consumption, in Denmark about 25%) considerable seasonal variations had to be included in the agreements with Norway and with the Netherlands. In 2010 about half the need for seasonal flexibility was covered by variations in the import of gas and LNG.

The enlargement of the storage facilities has so far been prevented by practical and finacial problems. The energy supply for the UK has become vulnerable and should give rise to concern.

Howard Rogers discusses the background of this development. He concludes that 'the 2000s decade does provide a useful suite of examples to illustrate the extent to which the UK gas market has become increasingly impacted by unforeseen events, some occurring on the other side of the globe'.

Scenarios for the future gas supply
After this introduction it is reasonable to consider how a more robust energy supply system could be developed. Howard Rogers is using scenario planning for this purpose.

Two scenarios are introduced. In accordance with the basic rules of scenario planning they are given characteristic names: 'LNG Rules the Waves' and 'Russia Fills the Gap'. The background of this choice is the considerable uncertainty on the progress of the large LNG projects.

Different national strategies could be applied for these scenarios. Essential conditions are determined already. Howard Rogers has put special emphasis on the significance of the gas storage capacity. For each of the two scenarios, the impact of three levels of future UK seasonal storage was explored: 5.7 billion m³ (7% of annual consumption), 10.7 billion m³ (13% of annual consumption) and 13.7 billion m³ (16% of annual consumption).

Figure 2 shows the annual supply of gas in the scenario 'Russia Fills the Gap' at low storage case. The British production of gas is supposed to fall from about 60% of the consumption in 2010 to about 12% in 2025.

The chart includes supplies for Ireland and IUK exchanges. IUK (Interconnector (UK) Limited) operates the gas interconnector Bacton-Zeebrügge.

It is assumed that only LNG corresponding to 30 billion m³ can be imported in 'Russia Fills the Gap', so a similar amount must be imported by IUK. Russia is supposed to supply this amount.

The low self-sufficiency is a problem in itself. On the top of that the seasonal flexibility must be imported. Therefore Howard Rogers presents a supply pattern on a monthly basis until 2025.

In figure 3 there is only room for the extreme right side of the chart for 'Russia Fills the Gap' and low storage case. The chart shows that British gas production no longer has seasonal variations. The LNG import is also quite stable throughout the year.

The import from Norway and the IUK import follow the seasonal variations of the gas consumption. A limited contribution from the gas storages is visible.

Howard Rogers discusses if business cases for new gas storages exist in the UK. 6 other countries in the North Western Europe have about 15 billion m³ storage capacity under construction. If no additional storage facilities are established in the UK the continental gas markets and particularly German and Dutch storages must absorb the British variations.

It is equivalent to the Norwegian smoothing service to Danish and German wind power.

The economic dilemma is classical. The energy storages are supposed to reduce price variations in the market, but if the volatility becomes to low, the business case for the storages fades away.

In 2002 a fire disrupted the IUK service for a month. Howard Rogers considers it as debatable if supplies can be redirected fast enough in case of a similar future event in 'Russia Fills the Gap'.

Similarly the report discusses the vulnerability in 'LNG Rules the Waves'.

The significance of wind power for better or worse
In the UK and in several other countries wind power is the major effort for reduction of the carbon emission. The report mentions different possible levels of future wind power capacity in the UK ranging from 20 to 90 GW in 2025. Howard Rogers has used 28 GW in 2020 and 43 GW in 2025 for the calculations. This choice is in good agreement with analyses published by Pöyry in 2010 [2].

Wind power is supposed to produce 70.5 TWh in 2020 (22% of the electricity consumption) and 106.9 TWh (33%) in 2025. Wind energy will mainly displace gas and is supposed to reduce the consumption of gas in the UK by up to 13% in 2020 and up to 19% in 2025.

This is a fair contribution, but far from sufficient for an essential improvement of security of supply.

Howard Rogers also demonstrates the effect of the wind power variability per day and per hour. Figure 4 shows variations per day in 2025.

Howard Rogers finds this chart disturbing. Cases with hourly data are even more alarming. In the discussion of the results also conklusions by Pöyry and REF [3] are considered. The agreement with Pöyry's conclusions supports the view of the author that wind power capacity exceeding 28 GW will imply serious challenges.

In the light of experience and plans for wind power in Denmark the charts do not look very alarming. However, it should be considered that Great Britain does not have the same level of electrical interconnections as Denmark.

Howard Rogers turns the story towards an assessment of the increasing need for 'fast storage' capacity, that is storage facilities which can absorb hourly variations. The calculated need is 1.17 billion m³ in salt domes.

The report's conclusions
Howard Rogers does not have simple messages for presentation in a few bullet points. Throughout the report there are observations, questions, discussions and conclusions. They all deserve attention.

The section on conclusions says that the UK must 'outsource' the provision of flexibility to countries on the continent unless other storage facilities than those already under construction are established.

Moreover the uncertainty on consequences of 'low probability, high impact' events, such as a sustained disruption of the IUK services, is emphasized.

If new gas storages cannot be made commercially viable they should be funded through government-imposed customer service obligation (in Denmark known as PSO or Public Service Obligation). The cost will be modest in comparison with other support for renewable energy.

It is indicated that the ambitious targets for wind energy have been defined without full understanding of cost and complexity due to the variability of a large wind power capacity. Replacing coal and oil by additional use of gas is mentioned as cheaper and simpler ways to reduce carbon emissions.

Gas will under all circumstances have a key role in the future as buffer for the wind power (see figure 4). Electrical interconnectors are not a solution since high and low wind events are likely to be correlated across much of North West Europe. On the other hand additional storage capacity in salt domes will be a realistic option.

Are we paving the way for another energy crisis?
From a Danish point of view the issue of this report should be seen in a longer perspective. The report has demonstrated an increased vulnerability of security of supply in the UK, but the problems will be similar in several other countries. Gas is gaining an increasing importance in Europe during these years. Gas is an attractive fuel which can be utilized in plants without expensive facilities for pollution control. However, gradually more and more gas must be imported from potentially unstable regions.

Prior to the crisis in 1973 oil had the same role in Europe as predicted in this report for gas in the future.

Based on the experience from 1973 Denmark has developed a more robust infrastructure including combined heat and power (CHP), multi-fuel plants and large fuel storage facilities. The discovery of oil and gas in the Danish sector of the North Sea gave The Danes a feeling of security, so the experience from 1973 is fading away.

It is being widely recognized that the development of carbon-free energy has a cost which must be paid by the energy consumers.

Security and flexibility also has a cost. It is unrealistic to expect that the total need for reserve capacity and flexibility can be met by purely commercial activities.

Competition has been introduced for the energy sector. The market implies incentives for high utilization of the best facilities and decommissioning of plants with low utilization. The result will be reduced reserve capacity for cases of disrupted supplies and sustained break downs of plants. The necessary infrastructure for safeguarding against unforeseen events must be provided by other means.

The nuclear moratorium in Germany demonstrates how a single event can shake energy markets and supply systems in Europe.

By using scenario planning Howard Rogers has given an example which deserves follow-up.

1 - Howard Rogers: The Impact of Import Dependency and Wind Generation on UK Gas Demand and Security of Supply to 2025, The Oxford Institute for Energy Studies, August 2011
2 - Pöyry: Gas: At the Centre of a LowCarbon Future, A Review for Oil & Gas UK, September 2010
3 - Renewable Energy Foundation: High Rewards for Wind Farms Discarding Electricity, 5-6th April 2011

Opdateret d. 31.8.2011