UK Winter Outlook Overview

Energy supply during winter has been a crucial issue in recent years, particularly in the gas market where a tight supply/demand match drove high prices during the Winter of 2005/6 and leading upto Winter 2006/7. Following the arrival of major oversupply, and mild weather during Winter 2006/7 gas prices crashed. This article provides a summary of National Grid’s latest Winter Outlook report, forecasting gas and electricity supply and demand for the coming Winter. In electricity the minimum forecast operating margin looks healthy at around 23%. In gas the match also looks good, but there is significant uncertainty due to the impact of gas prices on LNG and pipeline imports to the UK.

The consultation

On the 19th June National Grid in conjunction with Ofgem published its Winter 2007/8 consultation update document, which takes a look at gas and power supply and demand scenarios to determine how the UK will fare over the winter months without loss of power or security of supply.

The two main responsibilities of National Grid are:
1. to ensure that there is adequate network capacity to meet anticipated transportation needs, and
2. As the system operator of the transmission networks, for the residual balancing activity of both gas and electricity.

In order to understand how National Grid aim to meet these responsibilities over the winter months and what steps may be necessary to maintain these systems National Grid along with Ofgem and with feedback from industry players are conducting a consultation process over the course of the year with a final report due to be published around the end of September.

The initial report was published in March and twelve responses were received giving general support for National Grid’s assumptions. There is an invitation throughout the document for industry players to feedback by 3rd August.
Gas

There has been a significant increase in the amount of important infrastructure that has been completed or is under construction, which will allow new gas supplies to reach the UK. This has been a positive response to the declining UKCS, but uncertainty remains as to how this new infrastructure will positively affect supplies over the 2007/08 winter period.

The updated set of demand forecasts for 2007/8 that were recently produced for the 2007 Transporting Britain’s Energy (TBE) process, suggest that demand will be slightly higher than the 2007/8 forecasts produced in 2006 and this is mainly due to price. Given that available historical data is limited because the UK has not experienced a very cold winter for many years, confidence is high that the revised forecasts accurately reflect this. Following recent trends, it is expected that coal will be preferred to gas for power generation over the winter quarter.

The revised view of CCGT gas demand is about 54 mcm/d on peak winter weekdays, which is slightly higher than Summer ‘06’s forecast for winter 2006/7. As gas prices fell in Winter 2006/7 so CCGT gas consumption increased to the range 60-90 mcm/d. The swing in gas consumption by CCGT’s is key in achieving a balance between gas supply and demand. It will still be necessary though for larger users to provide demand response at times when the weather is cold and gas supplies are low.

Following experience from the last few winters, it is not expected that it will be necessary to interrupt customers for the purposes of capacity management over this coming winter, unless of course unexpected events occur such as plant failure or high peak demand-supply matching.

It is anticipated that, as with last winter, there will be increased flows around the Easington area due to the commencement of supplies from the Ormen Lange field through Langeled as well as the Aldbrough storage facility. Additional network investment is expected to meet baseline capacity obligations in time for this winter.

UKCS gas supplies

Table 1 above shows that the revised UKCS maximum forecast is slightly higher than the initial view taken in March, this reflects the latest TBE data. It would not be appropriate to assume that maximum flow levels would always be available, and last winter confirmed that a near consistent availability of about 90% was achieved. This has therefore been assumed again, although this might not be the case under more severe conditions.

Other factors that have to be taken into account are:
• Producers may achieve a higher or lower average than 90%
• If commissioning of new fields are delayed, or return from maintenance is delayed, this could affect supply particularly early on.
• If existing fields decline faster than expected this could affect supplies later on in the winter months
• Supply availability could be lower if high swing supplies are not fully utilised.

Imported gas sources

With the declining UKCS, the UK is becoming more reliant on new and existing import routes to ensure supply security. As these new sources increase, so does the level of uncertainty surrounding the supply outlook, as associated risks connected with how this infrastructure will be used and when it will be available need to be taken into account.

There is now less uncertainty over the availability of import capacity with the commissioning of Langeled, BBL, Teesport LNG and the upgrade at IUK last winter, not to mention the two major LNG projects at Milford Haven and further upgrades to IUK and BBL. But the concern now is how the UK competes with the European market and in the case of LNG the Global market.

The graph above shows an updated view of forward prices for the UK, Continental Europe and the US at the Henry Hub (HH). As prices are generally much higher in the US, the risk of LNG being diverted there is very high.

IUK expanded UK import capacity to 68 mcm/d last winter and is expected to expand further to 74 mcm/d for this winter, but as flows through the Interconnector can go either way, the market will dictate which way the gas flows.

Balgzand Bacton Line (BBL) now has a capacity of about 40mcm/d and only flows towards the UK. It is expected to supply around 25mcm/d over the winter period, but depending on price this could be significantly higher or lower.

There are now three pipelines in place to bring supplies to the UK from Norway, namely the Langeled pipeline from the Sleipner platform to Easington, the Vesterled pipeline and the Tampen Link from the Statfjord field and the FLAGGS pipeline to St Fergus. Flows of 70 mcm/d are expected, but again this could be affected by the price in Europe.

The total (physical) import pipeline capacity from Europe is now approximately 250mcm/d.

LNG deliveries into Grain were regular last winter at about 13 mcm/d. Dragon LNG at Milford Haven is expected to be commissioned during Q4 2007, but is not yet connected to the NTS and this could continue to be a delay. All being well Dragon could supply 20 mcm/d over the winter quarter. But, as already stated, because of price differentials LNG cargoes may well be diverted to the US.

Table 3 above summarises the Revised View from the initial consultation process and compares it with the initial March assumptions and those made for last winter. But as has been stated there are some considerable uncertainties and these are summarised in table 4 below.

The following two graphs show that with the Revised View supply assumption no demand response would be required to meet a 1 in 20 peak day, a very cold week, or a very cold month, but if you reduce the Revised View by 30mcm/d a slightly different story emerges.

Based on this scenario, the demand side response would need to be, 1 in 20 peak day 10 mcm/d, very cold week 12 mcm/d and a very cold month 18 mcm/d.

Electricity

National Grid’s latest Average Cold Spell (ACS) peak demand forecast for winter 2007/8 is set at 60.8 GW which is about 15GW lower than anticipated generation, see graph below. This gives a plant margin of about 23%.

Working from winter of 2006/7 the table below shows an assumed availability rate of 86% across the winter.

Without any unexpected plant breakdowns even a 1 in 50 should be manageable with the amount of generation capacity available, as the two graphs below show.

Gas and Electricity Interactions

It is reasonable to assume that gas fired power stations will respond to market price signals and that they will switch from burning gas if other fuel sources become cheaper. Their ability to do this though could be restrained by the Large Combustion Plant Directive (LCPD), the price of CO2 emission allowances plus other environmental constraints.

As already mentioned, coal is expected to be the preferred fuel to gas which reflects current fuel prices. This in turn will reduce the demand for gas by the power sector over the coming winter period.

The graph above shows how electricity demand could be met on a very cold day, where coal meets around 24 GW and gas is the marginal fuel.

By running various models, the results suggest that demand response would only be required by the power sector if gas supply is 30 mcm/d lower than the Revised view. Of a possible 1.01 bcm required in this scenario, only 0.31 bcm could be supplied from power generation.

This is a summary of the National Grid Winter 2007/8 Consultation Update Document, which can be viewed on their website at http://www.nationalgrid.com/uk/Gas/TYS/outlook/  all graphs and charts are from this document.

If you are an industry player in the UK and can offer information to assist in this consultation process then download the document and respond as necessary to Nation Grid as requested by them.

Summary by Paul Cassar of MJMEnergy Ltd