Gas alert as demand and prices rise

[UndercoverElephant]

The problem seems to be over, for this winter unless some unlikely event results in a major drop in imports.
The weather is very mild with gas consumption well below normal, it is forcast to remain mild for at least week. Any return of severe weather after that should be fairly brief.

What leads you to make this prediction? It's great news for me if it is true, but as a person who watches the weather forecast with keen interest (being a semi-professional forager) I'd personally say there's at least a 50/50 chance of further extended spells of very cold weather before this winter is through. Statistically, the coldest period of the year in the UK is the first two weeks of February.

[adam2]

Near term weather forecasts are fairly accurate, and mild weather is forecast for the next week or so.
That only leaves about 6 weeks in which severe weather could reasonably occur since such is very rare after Febuary.

Cold weather in March is certainly posible, but unlikely to severe enough to have much impact on gas stocks.
Gas stocks are ample for a few weeks of very cold weather such as we had in December, but are probably NOT sufficient if such weather persists for months.

[mikepepler]

I agree, the past few weeks of mild weather, combined with them actually getting round to putting some gas back into the stores, mean we're probably OK now, unless it goes arctic again. Of course, as each year goes by, the North Sea output drops some more, and it gets that bit harder to meet winter demand...

[kenneal - lagger]

Cold weather in March is certainly posible, but unlikely to severe enough to have much impact on gas stocks.
.

1963.

[biffvernon]

In 1963 the cold weather started on 1st January. In 1947 it was a little later.

[RenewableCandy]

You could easily have three very cold weeks in February. I don't know if that's long enough to revive the problem.

[DominicJ]

Last night was very cold in my house, the night before was just cold, had my gas fire on full whack (2kwh) and half whack respectivly

[Keepz]

Because security of supply is worth paying a premium for?

If larger gas purchasers think security of supply is worth paying a premium for, they have that option. They can take out firm supply contracts, or buy gas themselves in advance and put it in storage to be withdrawn only by themselves when they want it. They could even construct their own storage capacity. If they'd rather pay a lower price and take more of a chance on the market, that's their right, their call and their problem.

And you think that the country as a whole should be viewed in the same way? Why don't I find that reassuring?

See, that's the difference - you think of the UK as a whole as a uniform gas consumer. It is not. There are in the UK a number of gas purchasers, each of whom has their own view of the value they place on security of supply, informed by their knowledge of supply and demand conditions, how easy it would be for them to switch to an alternative form of fuel, market regulation (eg you get fined if you don't put as much gas into the national transmission system as your customers take out of it) etc. Some of them do need to be absolutely certain of gas supply, whatever it takes, so they pay a higher price for secure contracts. Others are able to be flexible enough to manage without or go short on a temporary basis, so they make purchasing decisions on a different basis. Do you really think it would be more efficient and secure if such consumers were forced to pay whatever price to keep on consuming gas, whatever happened on the supply side?

On what basis do you think they have higher security of supply on the Continent than we have here? They're having to pay high prices to import gas from the UK, where you seem to think gas supply is on a knife edge and in imminent danger of collapse due to low storage capacity. Where is the benefit of their greater storage capacity?

They have strategic stocks which means they are less vulnerable to interruptions in supply. If I double the size of my log store, it will cost me more to build, but if it snows and the delivery man can't get through, I am much more likely to have logs left. Not rocket science, is it?

Not a legitimate analogy. If you are really in the position that you have no other way of heating your home if it snows, and you live somewhere where it is likely to snow so hard that a delivery man cannot get through, then of course you should have a store of logs. But the UK is not in the position that it is dependent on a single source of fuel which is likely to be cut off. The position is more analogous to wanting to keep a freezer full of milk when you live in a suburban area with a Tesco, a Sainsbury and a Waitrose within easy walking distance.

If European countries choose to pay a higher price for market gas rather than depleting their own storage, does this not say something about the value of strategic storage?

It may say something about their view of the value of strategic storage, which has no empirical basis because there's no real-world evidence that an overcapacity and diversity of import and domestic supply sources and supply routes is any less secure than storage. Or it may say something about the inflexibility and inadaptability of their market.

Again, if you want the highest possible security of supply for yourself as a UK gas customer, and you're prepared to pay for it, then you can have it. All domestic gas consumers in the UK are indeed paying a premium for the highest possible security of supply, whether they want it or no. But why do you want to require others to do the same, if they don't feel the same need for it as you do?

Why do you think traders have been using language like, "it's really worrying"? (earlier article)

Sorry, I've looked through all the articles that have been recently posted, but I can't see any reference to a trader saying anything like "it's really worrying".

[http://af.reuters.com/article/energyOil ... WM20101222

Fair enough, but the recent articles also contain quotes from other traders saying they don't see much to worry about.

[mikepepler]

And here we go again....

Norway's Statoil said it was planning on Thursday to curb production capacity to conduct repairs at its giant Troll field, the biggest gas reservoir off Norway, and that the work would last less than a week.

The news on Troll, which produces 31 billion cubic metres of gas per year and 113,000 barrels of oil per day, comes amid a 70 percent drop in the flows of Norwegian gas via the Langeled pipeline that helped push UK gas prices to a three-week high.

"We will reduce capacity this afternoon due to planned short-term repair work," Statoil spokesman Ola Anders Skauby told Reuters. "It will be shorter than a week."

The spokesman declined to say how much production would be cut during the repairs.

Full story: http://af.reuters.com/article/energyOil ... 27?sp=true

Of course this inconveniently comes while the UK weather has turned a bit colder again... I'll have to get on and update my graphs of storage and do another blog post on the gas supply situation. I doubt it's looking too serious, but this outage in Norway increases risk again. Let's hope it doesn't go too cold...

[mikepepler]

OK, I've updated the graphs comparing storage levels this winter to last winter. They're posted here:
http://peakoilupdate.blogspot.com/2011/ ... plies.html

[RenewableCandy]

Now we've had a mild-ish January, the situation is not as dire as it looked at the end of December 2010, but we're not out of the woods yet.

Nice choice of metaphor...I'm sure you're well in the woods, building up a nice pile for next time it gets cold

[mikepepler]

Now we've had a mild-ish January, the situation is not as dire as it looked at the end of December 2010, but we're not out of the woods yet.

Nice choice of metaphor...I'm sure you're well in the woods, building up a nice pile for next time it gets cold

Yes, we brought back a trailer load (plus the back of the landy full of sacks)last week, and will get another tomorrow. Burning logs puts you much more in touch with your energy use, as you have to cut them down, split them and move them all!

Going back to gas, since the maintenance in Norway has started we've gone back to drawing gas out of Rough at maximum rate, and at a fair rate out of medium term storage too. LNG stocks are also running down fast, though still enough in there for another 5-6 days at this rate (and there will of course be tankers arriving too). I don't see an emergency coming, unless something else goes wrong in Norway or elsewhere.

[PS_RalphW]

Have you noticed, that since this Libya thing blew up, that interconnector imports have dropped right of, and the spot price of gas has steadily risen?

Up to 57p/therm again. We are down to 12,000GWh of storage (plus 6000 from LNG) . No great panic, but I suspect that this summer we will have trouble finding enough gas to refill storage.

Might have to outbid the Chinese for their LNG imports...

[adam2]

Have you noticed, that since this Libya thing blew up, that interconnector imports have dropped right of, and the spot price of gas has steadily risen?

Up to 57p/therm again. We are down to 12,000GWh of storage (plus 6000 from LNG) . No great panic, but I suspect that this summer we will have trouble finding enough gas to refill storage.

Might have to outbid the Chinese for their LNG imports...

Agree, panic over for this winter, but it is already time to start worrying about the volumes and prices available to re fill for next winter.
The present high oil price will tend to drive gas higher.

[biffvernon]

Presumably Italy will be losing gas exports from Libya and so making up the shortfall from Russia and so....we're all connected.