UK gas supply threatened by shortages - 10 June

Britain ’s natural gas supplies are threatened by shortages in the next decade, as electricity companies build more gas-fired power stations and domestic gas production declines, according to a report commissioned by the industry.

As a result, gas prices are like to rise well above today’s levels. The warning comes as Eon UK, one of the country’s biggest energy suppliers, cautions that it has reached “five minutes to midnight” in the effort to provide the electricity Britain will need in the 2010s.

The UK’s increasing reliance on gas imports is evidence of the growing dependence of European Union countries on external sources of supply. Until 2004 the UK was self-sufficient in gas but is now a net importer and will be increasingly in intense competition for supplies from Norway, Russia and the Middle East.

Alistair Darling, the trade and industry secretary, recently set out plans to cut Britain’s reliance on gas imports in 2020 from 80 per cent of its needs to 60 per cent. But industry experts are sceptical that that ambitious goal can be achieved.

The report from the consultancy Pöyry, commissioned by Oil and Gas UK, the trade association, argues that for the next seven years or so, Britain will have “capacity excess” for gas.

With pipelines from Norway, the Netherlands and Belgium being opened and expanded, and new terminals to import liquefied natural gas under construction, Britain’s potential gas supply could by next year be more than 50 per cent greater than demand.

From then on, however, the balance will swing back again: supply is expected to decline, while demand will probably grow. After about 2014-15, Britain may find it has less gas than it needs.

The precise balance will depend on the demand for gas, which in turn largely depends on how many gas-fired power stations are built. Between a third and a half of Britain’s electricity generation capacity is due to go out of service over the next 15 years or so, as old nuclear plants reach the end of their lives, and old coal-fired plants become uneconomic under new EU pollution control regulations. In the words of Vincent de Rivaz, chief executive of EDF Energy, another of the big energy suppliers, it looks as though there is a “power crunch” coming.

The government’s answers for filling the gap are renewables, new nuclear power, and perhaps “clean coal” power stations that capture their carbon dioxide emissions. But many in the industry think the most likely outcome will be a new “dash for gas”, repeating the rush to build gas-fired power stations that began at the end of the 1980s. Gas-fired power stations are much cheaper to build than the alternatives.

Clean coal, meanwhile, is a technology that is not in commercial use anywhere, and the government’s attempts to encourage it have proceeded sluggishly.

Growing reliance on gas also has worrying implications for Britain’s security of supply, at a time when the Pöyry report forecasts that the output of the UK’s gas fields will fall from about 70bn cubic meters this year to just 20bn in 2016, and even less thereafter