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Risks to UK gas security abound - Ofgem chief
February 3, 2012 / 1:00 PM / 6 years ago

Risks to UK gas security abound - Ofgem chief

* Lack of sufficient storage could threaten security

* UK highly dependent on Qatar for LNG

* Future US exports of shale gas to Europe not a sure thing

By Yeganeh Torbati

LONDON, Feb 3 (Reuters) - A lack of sufficient gas storage, heavy dependence on Qatari liquefied natural gas (LNG) and an unknown American capacity to export gas to Europe are all risks to Britain’s gas supply security, the UK’s energy regulator chief said this week.

“Fundamentally we are very concerned about security of (energy) supply,” said Ofgem Chief Executive Alistair Buchanan at a gas seminar on Thursday evening.

The Department of Energy and Climate Change (DECC) asked the regulator last year to examine the UK’s gas supply in the medium to long term, given political upheaval in the Middle East and the Fukushima nuclear disaster in Japan in 2011.

One risk to supply includes cold weather that could tax storage, Buchanan said.

Last year, gas supplies could have been at risk had the unusually cold winter not been followed by a mild spell towards the end of the heating season.

This year a mild beginning of the winter has allowed storage levels to be filled to high levels, but bitter cold this week has pushed UK spot gas prices to highs not seen since October 2008, with forecasted supply shortages of 9 million cubic metres a day, according to National Grid.

Britain pumped gas out of underground storage sites to handle the increase in demand, depleting stocks at a rate of about 99 million cubic metres per day.

RELIANCE ON QATARI LNG

Britain’s near-total dependence on Qatar as a source of its LNG imports is also a risk, Buchanan said.

“In [the third quarter of] last year, all of our imports came from Qatar. Of the ships that came to Britain last year only two were not from Qatar,” Buchanan said.

The latest government data showed that Qatari LNG imports were equivalent to 52 percent of the gas consumed over the first nine months of 2011, up from 11 percent for 2009 as a whole.

A Reuters analysis showed that this dependence could lead to spikes in UK gas prices as Asian demand for LNG pushes gas prices up.

Ofgem also warned that unconventional gas resources in Europe and shale gas exports from the U.S. may not be enough to secure Britain’s future gas needs either.

“We’re going to have some European shale but maybe not the amount that we thought,” Buchanan said.

The U.S. exploration of its shale gas resources has led it to reduce imports and raised hopes that it could one day export to Europe, potentially providing the continent a way to reduce dependence on Russian and Middle Eastern supplies.

Forward prices on the UK gas market suggest that traders are already pricing in expectations of a flow of gas from across the Atlantic, though companies have not yet broken ground on export plants in the Gulf of Mexico.

But Buchanan said the U.S. ability to export gas depended on whether U.S. regulators push for a switch from coal to gas power for domestic consumption and how quickly its economy grows in the coming years.

This week’s forum was Ofgem’s first major effort to gather industry views on the UK’s gas supply prospects following the DECC request last year, an Ofgem spokesman said.

Ofgem is due to present its report to the government in late spring. (Reporting By Yeganeh Torbati; Editing by Henning Gloystein and Jane Baird)

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