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Government storage review urged after NBP spikes again

02 Mar 2018 15:47 GMT
Government storage review urged after NBP spikes again

London, 2 March (Argus) — UK gas storage operators have stepped up calls for the government to recognise mid-range sites' role as "insurance" against supply and demand shocks, as NBP prompt prices hit record highs yesterday after National Grid warned of a supply deficit.

The operators were joined by industry groups, including the British Ceramic Foundation, which said more storage sites should be built as a buffer against sharp price rises in light of the closure of Rough, which represented around 75pc of UK storage capacity.

But the Department for Business, Energy and Industrial Strategy said today that decisions on investment in new sites "are made by the market" and added that it stood by its decision to allow Rough to close.

UK utility SSE, which has warned that it might have to shut its Aldbrough and Hornsea sites, urged the government to "assess the critical role of UK storage in relation to security of supply and particularly stability of gas prices" — its second such warning this winter. Germany's Uniper said its Holford site "responded well to a challenging UK gas market situation", and added that flexible storage was key in addressing volatility.

Stag Energy, developer of the proposed Gateway site, called for the government to launch a "comprehensive review" into the current demand-supply balance and its future implications, especially with the UK's coal-fired fleet due to be phased out by 2025 — something that could limit the country's ability to turn down gas-fired generation during periods of high demand.

The department said it would hold a meeting this month with industry representatives to discuss its assessment of gas security of supply.

But the UK has diverse supply sources and it was "impossible to conclude Rough being in operation over the last 48 hours would have had any impact", it added.

Quick withdrawals from the UK's eight mid-range storage sites — combined with brisk imports from the continent and LNG sendout — helped balance the system yesterday, preventing National Grid from restricting gas deliveries for domestic or industrial users.

But within-day gas traded above £3/th and the day-ahead spot price closed at £2.30/th — the highest since the industry was privatised in the 1990s — as the UK had to outbid continental hubs to secure enough supply.

But mid-range sites were slightly underutilised yesterday, with withdrawals below peak capacity of 96mn m³/d.

Increased volatility might help existing faster-cycling facilities. 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.

But the UK's eight mid-range storages sites can only hold up to 1.44bn m³, according to the National Grid.

Six others, amounting to 8.7bn m³, remain proposed. But none has begun construction, with several firms having cited recent years' tight summer-winter spreads as a major disincentive.