* Rising import dependency requires new gas storage sites
* Volatile renewable capacity creates need for flexible
* But current market conditions fail to provide investment
* Industry calls for government incentives
By John McGarrity
LONDON, Dec 20 Britain needs to provide more
incentives to draw investment into additional gas storage
capacity, analysts say, as the country builds new gas-fired
power stations fuelled largely by imported supplies.
Britain has a relatively small gas storage capacity because
it has so far been able to rely on its own North Sea reserves,
but domestic supplies are dwindling fast and analysts point up
the need for more storage to meet demand during times of
potential import interruptions.
They also say that gas storage sites are needed to fill
supply gaps caused by sudden falls in renewable power capacity,
which makes up an increasing share of Britain's power mix.
"There are two major issues at stake here. Will we have
enough available gas to supply power stations that come online
when the wind isn't blowing? And can we rely on domestic
supplies when there are outages to pipelines or disruptions to
LNG (liquefied natural gas) shipments?" said David Odling, a
consultant with Oil and Gas UK.
Persuading companies to spend billions of pounds on new
storage infrastructure will require a mixture of market-based
incentives and government intervention, according to consultancy
"Under a semi-regulated approach, developers are more likely
to invest in the type of storage preferred by policy makers,"
A storage facility could receive financial support in the
form of a top up payment whenever summer-winter price spreads
fall below a certain threshold, the company said in a report.
Scottish and Southern Energy, one of Britain's
leading utilities, said government support is required to make
potential investment into storage attractive.
"We are working closely with government to explore what this
support may look like," it added.
Other leading utilities declined to comment on the issue.
A consultation on new gas storage will run until April next
FLEXIBLE STORAGE NEEDED
Britain was a net exporter of gas until 2004, but steady
domestic production drops of 7 percent per year mean that the UK
now has to import more than half of its annual needs, data from
National Grid shows.
Despite the fall in domestic reserves, National Grid says
that gas will play an important role in supplying future British
energy needs, requiring additional gas storage capacities.
It says Britain's gas storage space has only increased by
around 1 billion cubic metres (bcm) in the last 10 years,
comparable to just 1.1 percent of annual demand, to a present
level of around 4.6 bcm.
"No further investments have been triggered, but ...
reinforcement will be required to support new storage projects,"
National Grid said.
Analysts further warn that the country's future energy mix
will need more flexible storage capacity than current
A UK parliament report says that Britain will in future need
smaller, so-called "quick-in, quick-out" storage facilities,
which are designed to meet variable demand patterns at short
notice, rather than large sites that serve a more strategic
Britain's biggest storage site is currently Centrica's North
Sea facility at Rough, off the coast of Scotland.
The facility can store around 3.6 billion cubic metres of
gas, equivalent to 40 days of supply, accounting for around
three quarters of Britain's total storage capacity, according to
figures from National Grid.
Utilities typically use times of low demand and prices, such
as summer, to buy gas and inject it into storage sites for sale
in winter, when cold weather pushes up demand and prices.
But the economic slump of the past years and low gas demand
due to coal being more profitable for use in power generation
have resulted in small differences between winter and summer gas
prices that makes large investment into new storage sites
DECC said that gas accounted for 28.2 percent of Britain's
electricity generation in the third quarter of 2012, its lowest
third quarter share for 14 years, while coal accounted for 35.4
percent, its highest third quarter share for 14 years.
The Department of Energy and Climate Change (DECC) said on
Thursday that offshore wind production increased by 54 percent
in the third quarter of 2012, compared with Q3 of the previous
year, while onshore wind power generation up by 38 percent,
further highlighting the need for additional flexible storage.