Are UK natural gas supplies secure this winter ? The margin of security gets smaller and smaller - and gas more expensive.

Gazprom reduced natual gas supplies to Ukraine at 0700 GMT today - Current debts have been cleared but the parties cannot agree on a price for future deliveries.

Ukraine was paying US $179.50 per 1,000 cunic metres, Gazprom now want US$250 pMcfm. and the Ukraine is said to have offered to pay US$201 per 1,000 pMcf.

This will not affect European domestic supplies in the near terms but if there was a lengthy stand off the effects could be felt as the Ukraine siphoned off supplies which pas throughfor Europe for their own use.

Looming UK natural gas shortages

Rune Likvern has posted a 2 part analysis entitled Will the UK Face a Natural Gas Crisis this Winter? on the Oil Drum Europe. Part 1 October 18th and Part 2 December 18th which with the usual well informed comments makes essential reading if you wish to grasp what is happening to UK energy security. (click on any image to enlarge)

This chart illustrates the case made by Forthcoming UK Energy Deficit FCUKED over a decade - the trend is clear, gas usage is increasing, rincipaly because nuclear production - green line (due to the disastrous and continuing reactor problems detaield here for years) is declining and the ultimate reduction in coal generation as the EU Fuel Directive results in the closure of antique coal generation plants.

The role of natural gas in the next 5 years has therefore becoem increasingly critical.

The UK has several sources of natural gas ;

1. Indigenous supplies from the North Sea / Morecambe Bay etc ... which are declining - National Grid figures show that current production averages 190 Mcm/d. This corresponds to approximately a 10% decrease over the corresponding period a year ago.

2. The newly opened Langeled pipeline joining the UK to the Ormen Lange field offshore mid-Norway. This pipeline goes via the Sleipner hub (see map) at which point Ormen Lange gas can come to the UK or be diverted to continental Europe. The other main pipeline is the Tampen Link joining Norway's northern oil fields to the UK's FLAGS pipeline system. This may pipe gas from Statfjord and other Norwegian oil fields to St Fergus in Scotland.

3. The UK is also joined by two interconnectors to Europe. The Dutch interconnector was bult to export UK gas to Holland and is currently an export only link. The Belgian interconnector may pump gas both ways and can be used to balance UK and European supplies.

4. LNG imports enter via terminals are concentrated in Wales and the Thames estuary and are developing their capacity . The South Hook facilities in Wales have been developed as a joint venture between Qatar Petroleum and EXXON Mobil .

Note : Net nat gas imports as modeled average 108 Mcm/d during the next 12 months. This corresponds to a very slight (<>

However due to very limited capacity to store gas - the UK can only store 4% of annual consumption compared with say 20-25% in Holland and Germany.

This storage is based on ;

1. Long Term (Rough, capacity of 3 340 Mcm and max flow rate of 42 Mcm/d),

2. Medium Term (Hornsea, Hole House Farm, Hatfield Moor, Humbly Grove; total capacity of 767 - 837 Mcm and max total flow rate of 37 Mcm/d)

3. Short Term (Avonmouth, Dynevor Arms, Glenmavis, Partington; total capacity of 260 Mcm and max total flow rate of 48 Mcm/d).

The total storage capacity of these facilities at the end of May 2008 was 4 367 - 4 437 Mcm, according to data from BERR. This amount corresponds to about 4% to 5% of annual consumption.

Based on these figures the latest BERR and Department of Energy and Climate Change (DECCA)and Nationa grdi information RUne Likvern has attempted to simulate the possible inputs of natural gas / usage and weather and the impact on draw down from storage

This indicate he says , medium term storage (yellow) is forecast to be emptied by late January, and that long-term storage (blue) is forecast to be emptied by mid February. The amounts shown are a combination of actual and forecast amounts. The darker shades represent development to date; the lighter shades represent the forecast period. (For a more detailed analysis go to the article).

UK Natural Gas prices

The price of natural gas in U. K. is important, because it helps determine the amount of imported natural gas available, both as pipeline imports and as LNG imports. Presently U.K. nat gas is traded at around 60 p/therm (day ahead) at NBP. (remember in Euros and US$'s actual contract costs expressed in sterlig have been rising the last few months.

At 60 p/therm suppliers would not be attracted ins hipping to the UK . Based on prices as they are today, it seems to Rine Likvern that a price in excess of 100 p/therm will be needed to move additional supplies to the U. K.

In November 2008, Russian natural gas was trading in Germany at around 110 p/therm (US$ 16 - 17/Mcf) at present exchange rates. If this reflects nat gas prices at the margin from Continental Europe (plus transport and administrative costs etc.), this suggests that U.K nat gas day ahead prices need to exceed 120 p/therm this winter to attract any meaningful supplies from Continental Europe.

The situation with LNG is less clear as contracts tend to be for long periods and spot cargoes are not readily available.

Don't expect to see your gas bills shrink and as the proportion of gas used to generate electricity increases your electricity bills won't either.

What happens if we start running out of gas ?

A lot of gas is supplied on interruptible contracts but domestic demand cannot be cut off - see the rawtenstall explosion when 14,000 homes had to each be visited to re-started by experts to ensure no air had entered the system to produce an explosive air/gas mix.

Quite simple ...

The Government are way ahead - domestic gas rationing in UK, this would be done by rolling 3 hour electricity blackouts - as most central heating systems rely on a continuous electricity supply. The government has it all planned - see http://www.berr.gov.uk/files/file35360.pdf !

Maybe a gas fire with a piezo spark starter would work and gas rings / ovens could be used - but not as heaters as they are not flued and Carbon monoxide could build up.

So lay in the candles, a camping stove - primus , propane gas, easily heated / cooked food , plan for vulnerable people , children , the elderly and get out the board games if the TV doesn't work. In the long term install a wood stove.

Warning signs in the oil industry

Apparently as the world oil price slumps much of the North Sea oil fields become uneconomic and the rumour mill says Conoco in Aberdeen are believed to have sent out letters of intention of redundancy. The very real threat here is that the North Sea is decommissioning - leading energy analyst Euean Mearns says if oil prices don't recover quickly then 2009 may see a flood of applications to shut down the rust belt - with Brent in front of the queue. See Bow Valley Divests Interest in UK North Sea's Peik Asset 29th Decemeber 2008

See Petrol price hits three-year low as crude falls again as tesco cuts prices today on the forecourt for regular unleaded to 82.9 p litre - Diesel is now averaging 99.72p a litre - the lowest price since November 2007 . Elsewhere Royal Dutch Shell Plc, and StatoilHydro ASA, Norway’s biggest oil producer, are among companies that deferred or canceled at least 14 projects this year in Alberta’s oil sands. Shell postponed a near-doubling of production in Canada’s oil sands .

Shtokman project on hold as financing hiccups

Russian gas monopoly OAO Gazprom owns 51% of Shtokman Development, a joint venture with France’s Total SA, - 25% stake, with Norway’s StatoilHydro ASA, holding 24%. Yuri Komarov, chief executive of Shtokman Development AG is on record saying he is concerned about financing caused by the "credit crunch".

Located in icy waters 550 kilometers into the Barents Sea, Shtokman is estimated to hold 3.8 trillion cubic meters of gas and 37 million tons of gas condensate, or enough to meet U.S. demand for six years.

Early estimates of costs to develop the field top $20 billion, and the consortium expects up to 70% of the development cost for the project’s first phase to be raised from capital markets.

The massive Arctic project will remain economically viable if oil prices stay around $50 or $60 a barrel.