Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 9

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.

FORECASTS OF GAS SUPPLY AND DEMAND

  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.

OFFSHORE RESERVES AND CAPACITY

  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.

GAS STORAGE—THE UK POSITION

Current

  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 respect—it tends to be used to "smooth" daily flows into local areas and can also export to help meet demand under-forecasts.

  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 storage field.

  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 380 Twh).

  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 facilities.

  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.

Future

  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.

EMERGENCY SIMULATION

  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


 
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