A request for firms to stop using gas was a wake-up call to the UK’s energy sector. Alistair Houghton reports

UNTIL last week, the repeated warnings from analysts that the UK needed more gas storage often seemed to fall on deaf ears.

But when dozens of major companies were told to stop using gas, the fragility of the UK’s gas infrastructure became all too clear.

The Government and gas suppliers were at pains to stress that the UK was in no danger of running out of gas, and that the Gas Balancing Alerts were necessary to regulate supply at a time of extraordinary pressure on the network during the UK’s big freeze.

But the move drew attention to the UK’s lack of gas storage facilities – a weakness that analysts feel could leave the UK vulnerable if supplies of overseas gas are disrupted.

Gas storage accounts for around 5% of the UK’s annual needs, compared with around 24% in France and 21% in Germany.

Ninety-five big companies and industrial manufacturers across the UK – including Cains brewery in Liverpool and Vauxhall in Ellesmere Port – were told to switch from gas to alternative fuel such as coal and oil.

Fifty-five firms were affected across the East Midlands, 39 in the North- West and one in East Anglia. Firms were told they could use gas again at the weekend.

National Grid – the operator of Britain’s gas network – can invoke clauses in contracts that firms have with suppliers.

The firms are on “interruptible” contracts with their suppliers, meaning they pay a lower tariff but have to stop using gas at times of exceptional demand to ensure domestic gas supplies are guaranteed.

Companies did not have their gas supply switched off, but were told that if they kept using gas they would face financial penalties.

National Grid said this was the first time it has had to ask firms to do this since 2003 – and not on this scale for 11 years.

Last week, it had to issue two gas balancing alerts in three days as plunging temperatures saw demand surge.

It later sought to assure everyone that the market had been “quick to respond”, with supplies now coming in from liquefied natural gas (LNG) terminals and from storage.

The alerts came as gas demand hit a record 454m cubic metres – higher than the all-time record of 449m, in January, 2003.

A National Grid spokeswoman said technical problems had led to a 52m cubic metres shortfall in supplies from the Langeled pipeline, which pumps in gas from Norway.

The “temporary” problems related to Norwegian operator Statoil’s huge Troll A platform. A Statoil spokesman said these had since been resolved.

David Hunter, analyst at energy consultancy McKinnon & Clarke, told LDP Business that the UK was clearly “lagging behind” other EU countries when it come to gas storage.

“You can compare us with Germany,” he said. “On a typical basis – not necessarily last week – we have the equivalent of two to three weeks of gas usage in storage. Germany has up to four months.

“These are broadly comparable advanced European nations.

“The difference between the two is probably that the UK has always had North Sea gas on tap and so historically hasn’t needed to buy storage.

“Our view at McKinnon & Clarke is that the government has known about the dwindling supply from the North Sea for decades, and they’ve known we would need to be a gas importer. We became a net gas importer six years ago.

“Successive governments, not just this one, have failed to plan to build storage. That’s why we’re now experiencing price volatility and supply disruption.”

Mr Hunter said that, in recent days, about 10% of the gas used by the UK came from storage facilities. He said that if more storage capacity were built to lift that to 30%, the UK would be able to avoid the level of interruptions seen last week.

The government, he says, needs to push energy firms to build new gas storage sites.

“The UK energy structure has been privatised and liberalised, so to a degree you can read it as the energy companies not responding to market signals,” he said. “Energy companies cannot be entirely immune from criticism here.

“But energy security is the overriding responsibility of the government of the day. The government needs to step in to make sure the companies understand their responsibility.

“There have been recent examples where people have been looking to build storage, but because of uncertainty over costs and other regulatory issues, that work is on hold. We need a much more robust strategy for providing that storage.”

Last week, a technical glitch saw supplies from Norway disrupted, but politics as well as technology can cause problems for gas networks.

Most Russian gas going to the EU, for example, passes through Ukraine – and rows between Russia and Ukraine have in the past led to gas pipelines being closed.

Roger Salomone, energy adviser at employers’ organisation EEF, said: “While it is easy to say 'I told you so', the fact is we have been warning of such interruptions for a long time and the need for urgent investment in our infrastructure to avoid them.

“The long-standing vulnerability in our energy system has been exposed, and as a nation we now need to take security of our energy supply more seriously.

"In particular, a wide spectrum of bodies has been lobbying for adequate incentives for gas storage to bring us up to the same levels as other countries on the Continent. However, these calls have been ignored and we are now seeing the consequences.

“Unless we invest in gas storage facilities to the same levels as other industrialised nations, this could have a very damaging effect on manufacturing.”

The Renewable Energy Association said last week’s alerts showed the country needed to move away from its reliance on foreign gas imports. As well as recommending renewable energy sources such as wind and wave energy, the Association says “renewable gas” should become more widely used.

Renewable gas is produced from organic waste such as sewage, food and wood.

An REA spokeswoman said: “Energy security is one of the major issues we’ve got, with the depletion of North Sea gas supplies and being held to ransom for gas by Russia.

“Renewable gas is getting much more prolific and a key answer to these problems.”

Some biogas is already produced in the UK at landfill and sewage plants, but is used to generate electricity.

In a report last year, the National Grid said that such biogas could meet up to half the UK’s domestic gas heating needs. The gas would be supplied through the existing gas grid.

Janine Freeman, head of National Grid’s Sustainable Gas Group, said: “Biogas has benefits on so many fronts. It is renewable and could help to meet the target of 15% of all our energy coming from renewable sources by 2020. It provides a solution for what to do with our waste with the decline in landfill capacity, and it would help the UK with a secure supply of gas as North Sea sources run down.”

alistair.houghton