E each fall, the Department of Economic Strategy, eenergy and industrial (BEIS) and the energy regulator Ofgem present a statutory report on security of supply to parliament. Last December, the ministry concluded that "the gas system has delivered safely to this day and should continue to function well." As has become the mantra of BEIS, the report notes that the UK benefits from "a persified range of supply sources and sufficient delivery capacity to more than meet demand. Which is fair with regard to the physical security of supply. About half of the gas we consume comes from the North Sea, and the rest we get directly through pipeline from Norway - through two interconnections in mainland Europe - and as liquefied natural gas (LNG) on the world market. /
IIt is true that the UK has enough pipelines and terminals to supply all the gas we might need and more. However, the recent outlook for gas winter 2021-22 clearly explains the cause of the current crisis, explaining that: “the underlying market agreements in the UK are based on the basis that the market will provide and that the market will balance out ”. It talks about 'price security', the price UK consumers have to pay to attract enough gas to meet domestic demand.
The UK, along with the rest of Europe, now finds itself at the convergence of two simultaneous procurement challenges. First of all, the difficulty in filling winter storage facilities due to a drop in deliveries.gas isons by pipeline to Europe, mainly from Russia; and second, a shortage of liquefied natural gas (LNG) cargoes in the global market, as buyers from Asia and Latin America outbid Europe. During the summer, lower than normal wind power production, along with high carbon prices that discouraged coal-fired electricity, resulted in increased demand for gas, making the situation worse. . The net result of all of this has been a tight global gas market and incredibly high prices across Europe, with limited prospects for relief.
So why is the UK so exposed to global gas price spikes? The answer lies in how we buy our gas.
Domestic production from the North Sea peaked in 2000. In 2004, the UK was a net importer. In the past, the forThe increase in production from the North Sea satisfied the demand for heating in winter. This is no longer possible: faced with the evolution of the situation, the industry has invested in the construction of significant LNG import capacities, but the storage remained limited, the economy It is no longer there and we have relied more and more on our links with Europe. Although we have left the EU, we are still part of the North West European gas market and the price we pay is determined by broader market conditions. EU energy diplomacy and relations between Brussels and Moscow are also holding us hostage.
In 2017, Centrica Storage has announced that the installation of Rough storage, a depleted gas field in the North Sea. At the time, there had beentissues, this would lead to greater price volatility. The government consulted but decided not to intervene in order to maintain the storage capacity, and the UK lost 70% s already limited capacity. This left the UK to enter this winter with little to no storage compared to many of its European neighbors, reinforcing its 'just in time' approach to gas security. Many gas-importing countries are more dependent on long-term contracts, which come with a price, but offer certainty. In Asia, the price of LNG is still pegged to oil, a cheap option at $ 80 per barrel, while the energy equivalent price of gas in Europe is $ 200 per barrel. Therefore, not everyone has to pay the current exorbitant spot price for their gas.
So what lessons can be learned from the crisis? The reality is that there is little the UK government can do to improve the global gas situation. Futures prices in the futures market suggest that high prices will persist for the winter; in the longer term, the market will rebalance. However, the government should reflect on its dependence on the market to ensure both energy security and affordability. Particularly because net zero and the energy transition mean that we are in a very different situation today from when gas production peaked more than two decades ago.
With coal disappeared at the end of 2024, gas is the most carbon-intensive element in our energy mix, still meeting 30% of total energy demand and generating 40% of our electricity. More than that, it provides a firm backup to intermittent renewable energy and is essential to meet the demand for heating.fage in winter, with more than 80% of households depending on it for their heating. It is also a critical source of heat in industry and a raw material for products such as fertilizers. Accelerating the growth of renewables will decarbonize the power system, but we have no response to intermittency and large-scale storage, although decarbonizing home heat will help reduce demand for energy. gas in homes. Thus, in the short term, gas will be difficult to replace entirely.
While demand for gas will continue to fail, domestic production in the North Sea will decline more rapidly, increasing our dependence on imports and our exposure to world markets. Falling demand will also test the economics of our gas infrastructure. Left in the market, our pipelines and terminals could become unsustainablelong before the last gas consumer switches to a heat pump. This highlights the need to manage the changing and declining role of natural gas in the UK's energy system as we decarbonize, ensuring critical assets stay in place while they are still needed, and that customers are protected against price spikes and volatility. The immediate lesson is that relying on the market for energy security comes at a price - the larger question is, should we trust it when it comes to the crucial task of decarbonization?
- Michael Bradshaw is Professor of Global Energy at Warwick Business School and Co-Director in the UK Energy Research Center