The UK’s energy system operator, National Grid, issued a Gas Deficit Warning (GDW) in the early hours of Thursday 1 March in reaction to a “series of significant supply losses.”
The effects of the ‘Beast from the East’ and Storm Emma have led to a sharp increase in gas demand, as well as contributing to a series of supply problems. As such, National Grid is concerned that – on current forecasts – it might not be able to balance the system by the end of the day.
How serious is a Gas Deficit Warning?
The GDW acts as a call for immediate additional gas supplies in the hope of solving the problem without disruption to consumers. Despite the potential supply ramifications, the price impact on most consumers is likely to be negligible. It would take a significant increase in the scale of the issue for it to ultimately impact on home gas supplies today.
Very cold weather has pushed forecast gas demand above 400mcm. This represents an increase of nearly 100mcm in the last week, and has pushed demand to levels not seen since early 2012.
At the same time, this cold weather has contributed to a series of supply disruptions in the UK and Norway. The UK is currently very reliant on medium-range storage – with withdrawals at maximum – and LNG sendout. The UK no longer has a long-range storage facility, after Rough closed last year.
Will we run out of gas?
Demand Side Response (DSR) offers will be considered by National Grid, which will involve the system operator paying industrial customers to reduce their gas consumption. Indeed, chemical company Ineos has already told the press it intends to cut its usage by 20% in response to the GDW. If other large industries follow suit, then this will cut overall gas demand.
Meanwhile, the UK is not getting as much gas from Europe as it could. The same cold snap is occurring across Europe. As a result, Continental demand is also very high and Europe has reduced its exports to the UK. European operators need the supply to cover their own consumption, and prices are not high enough here to encourage full exports to Britain. Yesterday, the BBL pipeline had difficulties, but these have been rectified, so there is the capacity to import more gas, if there is the incentive to do so at present. This is despite Within-day gas prices running close to 260 p/therm, and gas prices for tomorrow at all-time highs of 270 p/therm. Further price increases may be needed to encourage more Continental imports.
Is my bill going to increase?
Despite these difficulties, and the sharp increase in prompt gas prices, most consumers will likely not see an impact on their energy bills.
Short-term gas prices may have more than doubled in response to the shortage in supply, but wholesale gas contracts for delivery for the rest of the year are largely unchanged. It is these prices which have the more direct impact on most consumer energy bills. This is largely a result of the situation being a short-term factor. As such, the cold snap is more likely to have an impact on those consumers with a flexible supply contract, those who – depending on their current purchasing position – may be more exposed to fluctuations in Day-ahead contracts and the near-curve.
If you have any questions on this issue please contact your Account Director.
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