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UK gas supply-demand

As reports from National Grid clearly indicate, the current supply-demand situation is not as tense anymore as the last two winters. Although the UK gas production is still strongly decreasing new supplies have come available through new pipelines bringing Norwegian gas (Langeled), Dutch gas (BBL) and Belgian gas (expansion of IUK) and new LNG-terminals.

In the future the UK will be faced with growing import requirements, growing from 50% import requirements in 2011 to almost 90% in 2016. The market has responded to this future import needs in both the recently added import capacity and plans for more import capacity, both through pipelines and LNG-terminals (see graph).

The question is not anymore, will there be enough infrastructure to supply gas to the market. The question is which gas will respond to the gas price signals of the UK market. Although it is possible to provide the UK market with all the gas it needs from indigenous, Norwegian and LNG sources, the latter can be very expensive and also more uncertain considering the worldwide competition for limited liquefaction capacity. Norwegian and continental supplies tend to be in the lowest cost range.

The Dutch market is connected with cheaper gas resources, be it indigenous Dutch gas, surplus Norwegian Gas in Emden or future Russian gas through the Nord Stream. The Dutch TTF market is rapidly growing, and considered to be one of the more liquid continental hubs. Based on Gasunie’s long history of gas supplies to Europe, the TTF has one of the highest degree of interconnections with Europe, enabling many trading opportunities with markets which lie further upstream or downstream. The Dutch gas grid transports about 95 billion m3 per year. Indeed, the recently approved investment plan of € 1,1-1,8 billion even further enhances the transit possibilities of the Dutch grid.

Another consequence of the decrease of the UK gas production is the decreased swing which is offered. Currently in the UK only 5% of the yearly consumption is covered by gas storages, whereas import dependent countries typically have covered 20-25% by storages. This enormous need for swing could be provided by a mixture of swing from import pipelines, including the BBL, and diversion of LNG cargoes, but typically producers would prefer baseload deliveries. The Dutch geography is ideally suited for new gas storages, there are a lot of depleted gasfields that can accommodate the growing need for seasonal storage in northwest Europe. An example is provided in the past where the Belgian IUK has provided swing from the continent equivalent to the size of the biggest UK gas storage (Rough).