UK Energy Minister Asks Ofgem to Report on Longer Term Gas Security

Energy regulator Ofgem has been asked by the Department of Energy and Climate Change (DECC) to look into whether further action is needed to ensure that medium- to long-term gas supplies for consumers remain secure.

In the short term, gas supplies are relatively secure and the wholesale gas market in Britain has a strong track record in attracting significant private investment. More than £10 billion has been invested in new gas importation facilities over the past 10 years. But as Britain’s indigenous gas supplies decline and dependency on gas imports increases, consumers will increasingly be exposed to the global gas market for their gas supplies.

Chris Huhne, Energy Secretary, said:

“As our old coal and nuclear power stations shut down, gas can provide flexible and reliable backup electricity to complement the next generation of renewable and nuclear energy. Our analysis shows that it is likely to remain significant beyond 2030 – particularly with commercial carbon capture and storage.

“Energy security is at the heart of our energy policy but we should never be complacent, and that’s why I’ve asked Ofgem to look into whether further action is needed to ensure that medium- to long-term gas supplies for consumers remain secure.”

Ofgem Chief Executive, Alistair Buchanan, said:

“In 2010 Ofgem’s Project Discovery identified a range of issues in both the gas and electricity markets given the need to find £200 billion of investment between now and 2020.

“Project Discovery also identified the challenges posed by Britain’s growing exposure to a volatile global gas market. We have seen this recently where political instability in the Middle East and the impact of Fukushima have helped push up wholesale gas prices for this winter by 40%. We therefore welcome the Secretary of State’s decision to commission Ofgem to look at the rapidly changing gas supply situation for Britain and whether further measures are needed to secure supplies.”

Ofgem has also Tuesday announced a draft decision to increase security of supply incentives to suppliers to help strengthen the existing arrangements, and it will now be looking at what further measures may be needed.

This announcement comes as DECC and Ofgem yesterday published to Parliament the Annual Statutory Security of Supply Report. The report is being published ahead of the statutory deadline of year-end to ensure the market has timely and credible information ahead of the cold weather.

The analysis in the report suggests that in the short-to-medium term the UK gas supply infrastructure is resilient. There are, however, challenges in the medium-to-long term.

In the same report, National Grid project that peak electricity demand will remain relatively stable at around 60 gigawatts (GW), although there is a range of sensitivities around this central case.

In addition, DECC has published a risk assessment on gas security of supply, as required by the EU Regulation on Security of Gas Supply.

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Source: DECC, November 9, 2011