Supplementary Memorandum by The Gas Forum
Thank you for your letter of 19 November detailing
further information which the Committee has requested. I will
follow the order of your letter.
The Gas Forum does not conduct its own research.
The analysis of demand and supply which the Committee has requested
is a commercial matter for individual members, which they do not
disclose to the Gas Forum. However, a useful review is contained
in the Ten Year Statement 2001 which Transco produces annually
in compliance with its licence and Network Code obligations. We
append the sections on supply and demand, together with a description
of the methodology used.
The issue of exploitation of offshore reserves
is largely outside our jurisdiction, and we would refer the committee
to UKOOA and UKOITC. We would also refer the Committee to Transco
on infrastructure capacity.
However, we believe that there is a need for
improved investment signals for the National Transmission System
together with access to Long Term Entry Capacity in order to ensure
that the onshore infrastructure is developed to meet both the
onshore and offshore needs. Unless there is the correct amount
of entry capacity provided on a cost-reflective basis to meet
all gas that could be brought out of the North Sea, then whilst
in the short term capacity prices will be high because of the
over-demand for that capacity, in the long term producers will
not be prepared to pay those high prices and therefore marginal
fields will not be developed, or production will cease once the
extraction costs start to rise.
There is also a concern that moving to a shorter
within-day balancing period will require significant offshore
as well as onshore costs and again this could result in marginal
fields not being fully exploited and gas being left in the ground.
We understand that UKOOA has done some estimates on the volumes
of gas that could be affected by this.
High-pressure Gas Storage was originally developed
in the UK primarily to help meet high demands on cold days, by
providing a seasonal complement to beach-gas supplies. Domestic
gas demands are very much higher on cold days than at other times
of the year. It would be uneconomic to have the highest demands
met just from gas fields.
Gas used over a winter from storage is generally
replenished in the following summer, further helping to reduce
the overall "swing" required from the UK's gas fields
and improving their economics.
A secondary usage of such storage is to help
meet demand and supply volatility. Low-pressure local gas storage
can help in this respectit tends to be used to "smooth"
daily flows into local areas and can also export to help meet
This has worked well because the UK has had
both a spread of entry points for the beach delivery of gas (both
in number and geographic location), together with a high level
of beach deliverability. There has been no need for "strategic
reserves" in storage of the scale seen on the continent.
The existing UK storage facilities can hold
some 40 TWh of gas with 30 TWh of this being held in the Rough
At the current annual demand of approximately
1100 TWh this equates to 13 days of average daily gas demand in
storage. Alternatively, on the basis that storage would primarily
be used to cover domestic gas demand this equates to 38 days of
average domestic demand (UK domestic demand is currently approximately
If we look at peak demand the above storage
equates to seven days for total peak demand cover or 13 days of
peak domestic demand (UK total peak demand is 5600 GWh, peak of
which 3000 GWh would be domestic peak demand).
However, with the UK's diversified sources of
supply a better way of assessing storage in the UK would be to
recognise that even used for "security" purposes it
would be used to complement offshore supplies. Transco's plans
(cf the Ten-Year Statement, published in October, shows beach
gas meeting demands on about 260-265 days even in a severe year
and storage being required to supplement the beach supplies on
90-95 days (ref Figures 3.6A/B)
In practice the ability of storage to cover
demand is limited by the deliverability associated with the storage
fields, that is the maximum rate at which gas can be taken out
of storage. The biggest field (Rough) has a relatively low deliverability
rate of 455 GWh per day and it would take over 60 days to empty
the field from full. This relatively low deliverability is compensated
to a degree by higher deliverability rates from the other storage
The absolute maximum deliverability from all
storage is approximately 1500 GWh per day or about 50 per cent
of peak domestic demand. However this high rate could be kept
up for only about five days at which point it would drop significantly.
Some additional storage is either currently
being developed or is at a planning stage.
The additional volume of stored gas available
from these developments is very low (only another 15 per cent
of current). However the projects have concentrated on getting
high gas glows out of the facilities and hence the deliverability
capability provided by these developments would improve the current
rate by almost 30 per cent. This is excellent for the use of storage
as a short-term backup in the event of exceptional demand or short-term
supply problems but will not add significantly to the UK problem
in the event of catastrophic supply loss.
However, the committee may be aware that planning
problems have already resulted in the application for one of these
major developments being recently turned down.
Transco's plans show that on any reasonable
assumptions gas storage will be vital to the future security of
the UK gas industry.
There is little likelihood of substantial quantities
of new gas storage becoming available in the current decade, but
the Forum would emphasise the need for any new projects to be
regarded as of high national importance and given strong support
at government and local authority level subject to meeting the
relevant safety and site-security criteria being met.
Existing facilities are of substantial national
importance. The vast majority of the capacity is owned by two
companies (Dynegy Storage and Transco LNG). Existing controls
on Rough and Hornsea (owned by Dynegy Storage) expire in April
2004 and there are no storage capacity contracts in place beyond
that date, and for the LNG sites the existing contracts run only
to April 2002. The terms of access to these facilities beyond
these dates is thus unclear.
By contrast, the gas industry has long-term
purchase contracts for supplies from many gas fields and the largest
gas users tend also to have long-term contracts.
It is in the interests of the gas industry and
the country to have clarity as to future regulation or the contractual
terms of gas storage as soon as possible and (thereby or otherwise)
to enable long-term storage capacity contracts to be developed.
The committee may be aware that planning issues
tend currently to be determined according to local concerns rather
than national interests. This has recently resulted in an application
for a major storage development being turned down.
The recent emergency simulation at St Fergus
was conducted by the DTI, and due to the sensitive nature of the
subject we should be grateful if you would refer to the Department
for details of the outcome.
10 December 2001