UK lawmakers to investigate security of winter gas supplies

London (Platts)--28Sep2005

A cross-party group of UK members of parliament is to investigate the 
security of the nation's gas supplies this winter, in the light of fears of a 
shortage of gas and the resulting rise in gas and electricity prices.

     The House of Commons Trade and Industry Select Committee said in a note
late Tuesday that it would conduct a short inquiry, following a comprehensive
investigation by the same body earlier this year into UK gas and power prices.
     "When the previous committee produced a report on the wholesale gas 
market in March this year, the government and Ofgem expressed confidence that 
the market was robust and that...peaks in gas prices...were a temporary 
phenomenon...Since then forward gas prices...have remained unusually high,
with reports that some industrial customers are being quoted prices up to 50% 
higher than those quoted last year," the committee said.

     The committee said it did not want to re-open all the issues it had 
investigated earlier this year, but it wanted to see how developments in 
supply had changed. The committee said it was particularly interested in
reports that LNG aimed at the UK this winter might now be diverted to the US
in the wake of higher US gas prices after Hurricanes Katrina and Rita.
     "The committee wishes to focus on whether the supply situation in the 
coming winter is likely to be about the same, better or worse than predicted 
in February this year; and, if worse, what the consequences will be, and what 
the government and Ofgem's responses to the problem should be," the committee
said.

     Concerns over security of winter supply have grown as the Met Office 
Monday put UK emergency planners on "amber alert" for a colder-than-average 
winter, following a long run of mild winters. Also, a downturn in UK forward
prices since mid-July combined with rising US gas prices after storm damage to
southern production facilities has sent January 2006 gas prices higher at the
US Henry Hub than at the UK NBP, whereas in early July the UK price for
January 2006 was double the Henry Hub price. That suggests LNG might now be
diverted to the US.

     LNG diversion would likely only be a problem in extreme circumstances, 
however. LNG is not yet a core part of the UK's supply, expected to provide 
only around 13-mil cu m/day of gas for the UK this winter at most, out of a 
total maximum expected winter deliverability of around 508-mil cu m/day. And 
diversion could only happen if there were spare landing slots in the US.
     The industry consensus is that there is no threat to domestic energy
supplies this winter, though in very cold weather it might be necessary for
power stations to switch fuels away from gas and for some large manufacturers
to shut down and sell their gas back to the market.

     System operator National Grid says the UK can cope with a 1 in 20 winter,
the worst expected every 20 years.

     The issue is likely to be greater in future years. The UK currently has
only one LNG terminal, the 4.4-bil cu m/year Isle of Grain LNG terminal. But
by 2010 it could have around 45.4 Bcm/year of LNG import capacity at an
expanded Isle of Grain, two projects at Milford Haven and at Canvey Island.
--Alex Froley, alex_froley@platts.com

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