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The UK government should look again at supporting new gas storage if import dependency continues to increase. That was the view of Sabine Schels, head of fundamental commodity research at Bank of America Merrill Lynch, as she warned prices are likely to remain high.
Speaking at regulator Ofgem’s Winter Outlook Consultation Seminar in London, Schels said: “If we continue to see LNG imports into the UK being so low, the government should perhaps reconsider its position.”
The Department of Energy and Climate Change (Decc) last month ruled out subsidies for gas storage, saying security of supply could be delivered more cheaply by the market. Centrica responded by writing off £240 million spent developing two storage projects.
Europe increasingly depends on imports from Russia and Norway, Schels said, as stores across the Continent are lower than usual for the time of year and LNG is being drawn to high demand from Asia. Japan, in particular, is burning more gas as it reintroduces nuclear to its power mix more slowly than expected after the Fukushima disaster.
She added: “Gas has traded in a high range for quite a while. In our view the downside is capped. Summer prices this year have been really surprisingly elevated.”
Her remarks followed reassurances from National Grid that the UK’s diverse gas supplies are expected to be “well in excess of maximum demand” this winter. The system operator’s mantra as it set out its winter supply and demand forecasts was: “No cause for alarm; no room for complacency.”
However, National Grid director of market operation Chris Train acknowledged that there had been a “significant increase” in gas prices in March, when a series of supply disruptions followed a prolonged cold snap.
Decc also sought to emphasise the unlikelihood of supply shortage, saying in a statement: “Our infrastructure has the capacity to deliver over twice average winter demand for gas, and has coped well with recent extreme winter conditions.”
Gas storage makes up about 10 per cent of the UK’s gas supply mix over the winter period.
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