What would happen in an emergency, part 2 – Safety Monitors and Severe Winters

With the row between Russia and Ukraine over gas prices leading to a temporary dip in gas supplies to Western Europe , the issue of a potential gas emergency remains a hot potato. Last month we looked at what constitutes an emergency, and what action is likely to be taken in event of a Gas Deficit Emergency – when there is not enough gas to go round on a cold day. This month we look at another type of gas supply emergency – a Safety Monitors breach – and explore what could happen if the UK suffers an extended period of cold weather.  

Safety Monitors are about maintaining gas supplies to priority customers through an extended period of cold weather. While the Gas Deficit Emergency we examined last month, is most likely to occur because of a very, very cold day, and/or a serious supply failure, where NationalGrid will find it difficult to maintain pressures on the system because gas is leaving the system faster than it’s coming in (or coming through key transportation constraints), a Network Gas Supply Emergency GS(M)R Safety Monitors Breach, to give it its full, if somewhat unwieldy, title, is about duration – ensuring there’s sufficient gas in storage to meet demand over an extended period of cold weather. NationalGrid publishes Safety Monitors indicating the levels of gas in storage that would be required if cold weather hits, whether it be tomorrow, next week or next month. Because of this requirement, if levels of gas in storage drop towards or below the Safety Monitors NationalGrid may declare an emergency, even though there is enough gas to meet demand in the short-term. Safety Monitors are a form of insurance against cold weather that may (or may not) come later in the winter.  

The Safety Monitors regime was introduced in October 2004 to replace a system called Top-Up whereby Transco itself stored gas to ensure sufficient supplies for a severe winter, and has caused some controversy, as, unlike the Top-Up regime, there is no automatic safety net for firm customers, only for those deemed to be priority firm customers, which excludes most large industrial customers. There are three Safety Monitors: Long-range storage (LRS), which is the large Rough depleted field gas storage facility that is designed to empty over 67 days, Medium-range storage (MRS) which includes the salt cavities at Hornsea and Hole House Farm, and the onshore depleted fields at Hatfield Moors and Humbly Grove, all of which can empty in around 15 to 20 days), and Short-range storage (SRS) the four peak-shaving LNG storage facilities, that are designed to empty in only 5 days. While the Safety Monitors represent the emergency intervention levels for storage, NG also publishes Storage Monitors for each type of site, on an information-only basis. The Storage Monitors (also called the Firm Gas Monitors or Total Firm Monitors) represent the level of gas required to be held in storage to maintain supplies to all firm customers.  

How are the safety monitors calculated?  

The basic security standard behind the Safety Monitors regime is protecting priority demand in a 1-in-50 severe winter. The 1-in-50 severe winter is the kind of extended period of cold weather you would statistically expect to occur once every 50 years. The last winter of around this severity in the UK occurred in 1962/63, when parts of the Thames froze, and temperatures remained below freezing for the last week of December, most of January and the first week of February. Although some days might be as cold as –5ºC (a 1-in-20 peak day) average temperatures over a month could be –2ºC. Of course, you can get colder weather than a 1-in-50 winter (it’s worth noting that Hurricanes Katrina and Ivan, which battered the Gulf of Mexico in 2005 and 2004 respectively, were both worse than 1-in-100 year storms), but this is the security standard that British Gas/Transco/National Grid have traditionally used, as enshrined in the Gas Acts and the Utilities Act. Therefore NG first forecasts demand for priority customers (all non-daily metered customers, exports to meet firm demand in Ireland, and specific priority firm daily-metered customers) in a severe winter[1], then builds up a supply forecast, taking into account beach supplies, LNG and Interconnector imports and withdrawals from storage. The demand forecast is in some way the easy part – NG has over 70 years of data on the correlation between temperature and gas demand. Supply forecasting has recently become more problematic, with UK beach gas supplies in sharp decline and increasing concerns about reliability, import facilities such as the Isle of Grain LNG facility and the Interconnector pipeline subject to commercial pressures outside the UK market, and uncertainty about the contribution that could be made by new storage infrastructure such as the Humbly Grove facility and the expansion at Hole House Farm. There have therefore been some changes through the winter so far as NG has adjusted its forecasts on the basis of experience.  

To explain how this works in practice lets look at some storage monitors downloaded from the NG website on 11^th January (www.nationalgrid.com/UK/Gas/Data/misc/ ). The red line ‘LRS Safety Monitor’ is the amount of gas required to left in long-range storage (a.k.a. the Rough storage facility operated by Centrica Storage) to meet its contribution to maintaining supplies to priority customers in a severe winter. This is a flat line for most of the winter and then starts to decline rapidly in February and March. This is because the worst of the winter should then be past and there is less requirement to keep gas back in case there is a further spell of cold weather later in the winter. The green line ‘LRS Stock’ is the actual amount of gas in Rough. This rapidly increased through the summer as Rough was being refilled, plateaued once Rough was full at around 35,400 GWhs during October and early November. The cold snap towards the end of November saw a significant dip as shippers withdrew to meet demand, but during December withdrawals have returned to low levels and there has even been some refilling during the Christmas break. The key issue is that there remains plenty of gas in Rough, and at current levels (26,500 GWhs, just over 75% full) it would take 43 days of withdrawal at full rate before the Safety Monitor would be breached.  

Figure 1:       Long-range storage monitors

Source: NationalGrid plc  

The blue line ‘LRS Total Firm Monitor’ is more interesting. This is the amount of gas required in storage to maintain supplies to all firm customers in the event of a severe winter (also referred to as the Storage Monitor). As can be seen stock levels are close to this level, indicating that if cold weather struck, there is likely to be a need for significant interruption and firm customer demand-side management. However, as we are now around the middle of winter, the required levels of gas in storage go down sharply – if, as currently, gas continues to be withdrawn below the maximum daily rate, the margin above the storage monitor will increase.  

What actually happens with these monitors?  

Figure 2:        Medium-range storage monitors

Source: NationalGrid plc  

This reflects the fact that there is a forecast gas supply gap for a severe winter this year. The chart below from NG’s recently published Ten Year Statement illustrates that, although by 2007 there should be plenty of gas import and storage capacity to meet a peak demand day, not enough infrastructure was constructed in time to cope with such a cold day for last winter or this winter. Indeed in order to provide sufficient storage capacity for a severe winter, NG estimated that the ideal MRS Total Firm Monitor should have been four times existing storage capacity! For this winter the actual MRS Total Firm Monitor was set instead at the maximum capacity of the mid-range storage, including Humbly Grove, which is now not expected to be operational until later in 2006. Unsurprisingly, therefore, the MRS stock levels have never reached the Total Firm level.  

Source: NationalGrid plc  

Figure 4: Short-range storage monitors

Source: NationalGrid plc  

The outlook for the rest of winter  

So far this winter has not been Siberian winter many feared, and gas supply has coped with demand, albeit a demand somewhat tempered by a number of large industrial users switching off in the face of high gas prices. However, should significant cold weather strike over the next two months, there is still cause for alarm over gas supplies. The charts below show the same storage monitors as above, but with an additional green line showing what would happen if gas was withdrawn from storage at maximum rates. On the basis of these, should really cold weather strike tomorrow, although there is plenty of gas in Rough until March, the medium and short-range storage facilities would breach their Safety Monitors during the course of next week, probably triggering an Emergency, as NG is forced to act to maintain levels. The system is still very close to the edge.

Figure 5:       Long-range storage monitors with maximum withdrawal line

Source: NationalGrid plc  

Figure 6:        Medium-range storage monitors with maximum withdrawal line

Source: NationalGrid plc

Source: NationalGrid plc  

Article by Nick White who will be speaking at the Petroleum Economist Winter Briefing on 31^st December at the Institute of Directors in London . Click here for more details