Britain risks running short of gas over the next two winters if the weather were particularly harsh or there were an emergency such as a terrorist attack on an import terminal, according to a House of Lords inquiry.
The report by the Lords European Union committee questioned whether planned import facilities would be ready in time or would be sufficient to cope with both a decline in North Sea gas production and a severe winter. Lord Woolmer, committee chairman, said it was “unconvinced” by reassurances from the Stephen Timms, energy minister, and Ofgem, the industry regulator, that supplies would be “adequate except in extreme conditions”.
“It is the extreme conditions we worry about. The committee questions the UK gas market’s ability to cover severe peak demand over the next two winters. The pipelines bringing gas into the UK have little spare capacity,” he said.
The investigation into European gas market liberalisation and security of supply urged “government to review its emergency procedures for handling a sudden and major loss of gas”. It was particularly concerned about the length of time it could take to reconnect supplies to households.
Concern over supplies has helped forward gas wholesale prices for next winter rise to record levels, touching 37.7p a therm yesterday. This compared with just more than 24p a therm quoted for winter 2003-04 at the same stage last year, said the Energy Contract Company, the independent consultants.
However, Erik Verhaar, head of European power and gas at Deutsche Bank, said: “Last year, we had a similar scenario, where winter gas prices were high during the summer because everyone thought it was going to be a cold winter. It turned out to be a mild winter, and gas prices were lower than they were before the winter started.”
National Grid Transco, which operates the electricity and gas transmission networks and is responsible for managing energy supplies, estimates Britain will need to import 50 per cent of its gas requirements by 2010.
To help meet this demand, the import capacity of the gas pipeline connecting Bacton in East Anglia to Zeebrugge in Belgium is being tripled to 23.5bn cubic metres a year – equivalent to 17 per cent of the country’s gas requirement on a typical winter’s day. The £150m project is due to be completed in 2005-06. NGT next year also plans to complete a 5bcm liquefied natural gas terminal on the Isle of Grain in Kent while two large terminals totalling 25bcm are due to be completed in 2006-07.
However, the Lords report questions the strategy of relying on market signals to determine whether sufficient investment is made by private operators in national energy infrastructure. Lord Woolmer said: “New capacity to import is being built but even when new import schemes start operating in 2007, we still question whether a market-based ‘just-in-time’ system will provide insurance against the one-in-20 year peak demand that NGT is legally obliged to meet, or against unforeseen circumstances.”