Russian policy prompts energy supply crisis fears

Posted in Energy Procurement

Daily Telegraph report warns of potential gas shortfalls in the UK if a ‘perfect storm’ materialises.

Depleted gas storage capacity combined with a host of other factors could result in factories being forced to shorten their working week due to power shortages. That is the potential doomsday scenario highlighted by a report in The Daily Telegraph.

In the report, Marco Alverà, chief executive of the Italian pipeline and infrastructure group SNAM, says the UK government may live to regret the decision not to fund the refurbishing cost of the UK’s biggest gas storage site at Rough on the Yorkshire coast.

Centrica subsequently shut down the facility which accounted for 70% of the UK’s gas storage in the summer of 2017, leaving Britain more dependent on imports and exposed to price spikes.

“The country is blessed with the geology of the North Sea but it hasn’t used those advantages, and now it has to rely on German and Dutch storage,” Mr Alverà said.

Russia president Vladimir Putin’s strategy of restricting the seasonal flows of pipeline gas into Europe for his own political gain has added to the sense of uneasiness.

“The UK is more vulnerable to a gas supply crisis than other Western European countries. It has way too little storage and it is buying more Russian gas than it realises through the Netherlands,” added Mr Alverà.

Energy procurement

With coal being phased out in the drive towards net zero carbon, gas has become the predominant source of energy for power plants. Gas prices have gone through the roof and the balancing act of energy procurement has arguably never been trickier.

The crunch has been compounded by voracious demand for liquefied natural gas (LNG) in Asia, the report states, along with a host of complications in the global gas industry linked to Covid. “The storage situation in Europe has turned increasingly dire, with winter quickly approaching,” said Francisco Blanch, chief energy strategist at Bank of America.

Should the UK be hit by another Beast from East cold weather blast and heating demand goes up as a result, added pressure would be placed on the UK’s diminished storage and it is likely prices that are already at record levels will continue to climb.

Buying in gas may become so expensive that businesses will have to reconsider how they operate. Also, this year’s disrupted shipping market may mean that shipments do not arrive in time to meet demand in the coldest months.

Gas and electricity interconnectors with mainland Europe could meet the demand but these too have become politicised post-Brexit and supply through this network of pipes is not as straightforward as once was. Other countries could be prioritised over the UK, for example, if there is an energy shortfall elsewhere on the continent.

While the report concludes by saying that a three-day working week is unlikely, it does highlight the myriad of factors that can affect supply and subsequently the energy price markets.

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