Gas is a major component of the energy used in the UK and, according to the Department of Energy and Climate Change (DECC) it comprises approximately 44% of the UK’s fuel mix. Up until 2003 the UK was self-sufficient in terms of its gas supply. However, with the decline in North Sea reserves, the country has had to increasingly rely on imported supplies. In 2010 natural gas production from the UK Continental Shelf was approximately half the level produced in 2000.
Today, more than half of gas used comes from imported sources. The National Grid estimates that by 2020 the UK will import around 70% of domestic and commercial gas. The UK is actually still a relatively large producer of natural gas. After the Netherlands it is the second highest producer in the EU and is one of the top 20 producers globally. However, demand has increased greatly and overtaken available supply.
Approximately 50% of a domestic gas and up to 80% of a business gas bill is made up of the wholesale cost. At times of peak demand the wholesale market price can increase dramatically. An example of this was seen recently where severe weather conditions across the continent caused a spike both in demand and prices. In the UK the price of gas for next day delivery reached a peak of 75p per therm, which was the highest level for more than three years.
In relative terms, prices for business gas customers are actually among the lowest of the 27 countries within the EU. Only five countries were lower for consumption of less than 0.25 GWh/year – Bulgaria, Estonia, Finland, Lithuania and Romania. While for heavier gas consumers (5 GWh/year), the UK was the second cheapest country within the EU, with only Romania being cheaper.
One way for energy providers to protect against price fluctuations is to have gas storage facilities allowing them to purchase gas on the wholesale market at quieter, cheaper periods. The Rough gas field, 20 miles off the East Yorkshire coast acts as both a source of gas supply and a storage facility. The site, operated by Centrica, owner of British Gas, was originally discovered in the 1960s, and by the 1980s had been converted to allow storage of gas. At times of peak demand approximately 10% of the UK’s requirement for domestic and business gas can come from the Rough field. In addition to the Rough gas site, a Liquid Natural Gas (LNG) import facility was opened at the Isle of Grain in 2005 and two new LNG terminals at Milford Haven (Dragon and South Hook) began commissioning gas in 2009.
Storage facilities such as these are important because they allow for proactive management of demand. This may enable energy companies to offset demand spikes, resulting in a potential reduction in the price charged to domestic and business gas customers. With the opening of new facilities, the UK’s ability to store gas has improved. However, capability is still estimated at less than 5% of annual gas demand.
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