Blog: 26 November 2018Time for a Rethink on the UK's strategy for Gas Storage?

A new report by Wood Mackenzie, published this month, highlights the need for the UK to increase the number of underground gas storage facilities to help reduce price hikes, prevent shortages during peak demand and manage security of the UK's gas supply during cold weather.

Historically, we have always had limited capacity for gas storage as the country could rely upon North Sea gas. The UK only has enough storage capacity for just 5% of its annual consumption compared with 21% in Germany and over 18% in the US.  We have always had limited capacity for gas storage, due to the country being able to rely upon North Sea gas, but in 2004 there was a real concern that the decline in production from older North Sea fields would create a shortage of winter gas. Forecasts estimated that the UK expected to be reliant on foreign gas imports for up to 80% of its supplies by as early as 2020. 

Consequently, a number of new planning permissions followed Centrica's Caythorpe Gas Storage Facility in the East Riding of Yorkshire (2007), King Street Energy scheme in Northwich and WSUK's Saltfleetby Gas Storage Facility in Lincolnshire (2010) and Halite's Preesall Underground Gas Storage facility in Lancashire (2015) which, together, would have provided the UK capacity for 2.5 billion cubic metres of gas, had these consented schemes come to fruition. So, why didn’t they? The answer partly lies in the availability of cheap supplies of gas sourced from abroad and, in recent years, from the UK Continental Shelf.

This month the Oil and Gas Authority published its latest estimates of UK Oil and Gas Reserves and Resources which showed petroleum reserves, including discovered and undiscovered, remain at a "significant level" - the equivalent of 5.4 billion barrels of oil equivalent of which 1.7 billion is from gas reserves, with production expected to continue for at least another 20 years.

The overall long term trend remains, however, as resources reduce and new discoveries tail off the dependency on foreign gas continues to increase. Currently, net imports of natural gas are around 45% of UK supply, whilst Gas storage capacity looks set to fall even further. In June 2017, Centrica announced that the UK's largest storage facility was to close permanently after a temporary shutdown owing to its age and the need for substantial refurbishment.

The short-term solution for the UK will be to increase gas imports, mostly via ship, from places such as Qatar. A 2018 study commissioned by the UK Government stated that the UK has access to a diverse supply of gas and should be secure against most potential disruptions.

But imported gas currently costs more than £13m a day - money that is not generating jobs or tax revenues. Only sustained high price differences, beyond current levels, between the UK and the continent will be a prerequisite of any further new infrastructure.

The determining factor in developing storage capacity may turn out to be geopolitical. By 2030, 75% of EU supplies will come from Russia, LNG or other long-distance pipelines as gas production from Norway declines and the Netherlands becomes a net importer. The prospect of greater reliance of gas imports from outside Europe, where the UK is more susceptible to political uncertainty, may prove to be decisive in building up our storage needs in the future.

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Oil and Gas, Energy, Gas Storage, Infrastructure