Demand for gas soared to its highest level in five years on Wednesday as freezing weather gripped the UK, prompting fears supplies could get tighter over the coming days.
Wholesale gas prices for same-day delivery soared to a 12-year high, jumping to 190p a therm on Wednesday morning, more than three times the average of 56p a therm seen so far this month.
Prices were driven higher not just by snowy conditions but by several outages at gas terminals which slowed imports.
Demand was forecast to be about a third higher than seasonal norms as households turned up their heating.
The country’s gas system was undersupplied in the morning, with demand at 391 million cubic meters (mcm) and supply expected at 385mcm, according to data from National Grid, the system operator. Supplies were back up at 415mcm by late afternoon, ahead of forecast demand of 405mcm for Thursday.
National Grid said that it was “in communication with terminal operators and closely monitoring the situation”.
With the cold snap expected to last for several more days, it is the first major test of Britain’s gas market since the closure last year of Rough, the UK’s biggest natural storage facility, which prompted concerns the country would be more exposed to sudden price swings in winter.
Storage facilities have traditionally helped to smooth out price spikes over the winter and Rough accounted for more than 70 per cent of the UK’s storage capacity.
The National Balancing Point gas market, the virtual hub that serves as the main pricing point for UK natural gas, has seen “a perfect storm”, said Oliver Burdett, commercial director at EnAppSys, an energy market monitoring specialist.
“Issues at the Norwegian Kollsnes processing plant, low gas flows from Europe due to shortages on the continent and cold weather have combined to expose a weakened gas market following the closure of Rough,” he added. At its peak, Rough could hold 3,700mcm of gas so its removal from the market has a “significant impact”.
As supplies from the North Sea decline over the longer term, Britain will become increasingly import dependent and need to compete with gas supplies, according to market analysts.
Last winter, the UK secured 38 per cent of its gas supplies from the North Sea, 42 per cent from Norway and 10 per cent from pipelines linked to continental Europe. A further 4 per cent came from shipments of liquefied natural gas dispatched by producer countries such as Qatar, with the remainder provided by storage facilities.
Security of supply in the UK has “gotten worse”, said Niall Trimble, managing director of the Energy Contract Company. Before the closure of Rough, Britain’s overall gas storage capacity accounted for roughly 6 per cent of annual demand. That has now dropped to about 2 per cent, said Mr Trimble.
The high wholesale prices could also lead to higher household energy bills in the coming weeks. While none of the big suppliers has yet raised their tariffs, Bulb, one of the fastest-growing small suppliers, said earlier this week it would be putting up its dual fuel electricity and gas tariff by £24 a year to £879 for a typical annual bill.
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