Firms call for storage support after NBP price spike
London, 13 December (Argus) — UK firms have revived calls for the government to support investment in storage sites, after NBP prompt prices spiked yesterday, in part because of the limitations at Rough.
UK utility SSE, which has said its Aldbrough and Hornsea sites risk being closed because of tight storage economics, urged the government to "recognise the critical role of UK storage in relation to security of supply and particularly stability of gas price".
NBP within-day gas jumped from 64p/th to 99p/th in the morning before falling to 73p/th at the close, as unplanned Norwegian constraints, low UK production because of the Forties Pipeline System shutdown and high demand amid cold weather left the system undersupplied.
UK supply flexibility has been reduced because of the planned closure of Centrica's Rough facility. The site had been able to withdraw as much as 46mn m³/d, to help meet high demand along with other flexible sources such as mid-range storage, the Interconnector and BBL pipelines, and LNG.
But the decision earlier this year to close Rough has contributed to greater NBP price volatility, although before yesterday that had been most pronounced in the summer.
Some cushion gas is allowed to be pulled from Rough this winter, but withdrawals were only 8mn m³ yesterday and all working stocks — including recently reclassified cushion gas — are expected to be produced by early February.
More of the cushion gas could be produced in the coming winters, but withdrawal capacity will decline as reservoir pressure falls.
The UK's department for business, energy and industrial strategy Beis has said that existing supply options were "highly diverse and flexible" and that security of supply was not threatened.
While the UK did have diverse sources of supply, it could require consumers to pay a high price to secure them without adequate storage facilities, SSE said.
"Challenging" economics are "putting a question mark over the remaining sites following the closure of Rough", SSE said.
The UK has eight mid-range storages sites that can hold up to 1.44bn m³ and deliver up to 121mn m³/d, according to the National Grid.
Six others, amounting to 8.7bn m³, remain proposed. But none have begun construction as tighter summer-winter spreads in recent years has reduced the value of seasonal storage.
Stag Energy, the operator of the proposed 1.5bn m³ Gateway facility, called on the government to establish a "regulatory framework" to ensure a minimum amount of gas storage, similar to other European countries.
The UK has lost 75pc of its storage capacity in terms of volume and sites can only hold the equivalent of 5-6 days of winter demand, director George Grant told Argus.
But the UK was still able to meet demand comfortably yesterday, even after substantial halts to domestic and Norwegian production. And there was more supply flexibility that was not used, with regasification from the Dragon and Isle of Grain terminals ramping up compared with previous days but still totalling less than 50pc of capacity over the gas day.
"I cannot say what the right number of days necessarily should be, but this is a very low level for a country as reliant on gas as the UK is," Grant said.
Gateway is "shovel-ready", he said.
But Italy's Eni, the firm behind the planned 4.6bn m³ Deborah facility, said after the closure of Rough was announced that it "does not see changes in the project status" of the site. It is yet to begin construction after receiving approval in 2010.
The rise in NBP prompt prices yesterday was sufficient to drive a rise in LNG sendout and mid-range storage withdrawals, allowing the system to balance. Prompt prices rose enough to encourage brisk imports from the continent, coal-fired power generation to step up, and the booking of spot LNG to replace higher sendout.
And the increase in volatility could be good for faster-cycling facilities. Mid-range capacity holders were able to raise withdrawals as NBP prompt markets spiked, allowing them to sell more gas at short notice in response to firmer prices.
NBP prompt prices have also become more vulnerable to collapsing during the summer because of reduced injection demand following the closure of Rough.
Mid-range capacity holders were able to increase injections in June, when NBP everyday prices opened a wide discount to near-curve contracts during the annual Interconnector maintenance.
But summer-winter spreads have only widened marginally because of the closure of Rough, as there is still ample storage capacity on the continent, offering little incentive to build more seasonal storage sites to replace it.
Mid-range withdrawals jump GWh/d
NBP price volatility increases %