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The National Grid Winter
Consultation Report 2007/8
The National Grid winter consultation report written in conjunction with
Ofgem represents national grids third and final draft in the process of
presenting the outlook of supply and demand balance for the UK gas and
electricity markets for the winter of 2007/8. This September update aims
to bring together National Grids final view for the winter 07/08
outlook, reflecting upon specific points raised and further analysing
the June publication. The purpose of this article is to provide the
reader with a brief overview of the report focussing largely on the gas
issues raised.
Summary of Winter Outlook for Gas
With the UK moving towards gas import dependency, the arrival of new gas
imports, and the development of gas storage facilities will have a
significant impact on the supply demand balance this winter. In
particular the commencement of deliveries of LNG to Milford Haven, the
commissioning of the new Aldbrough gas storage facility, and the
expansion of Hole House Farm gas storage facility will aid the supply /
demand match capacity and more than compensate for decreasing supplies
from the UK continental shelf (UKCS).
Though, developments in the importation infrastructure have supported
the view of a less tight winter for 2007/08, the supply-demand outlook
still looks to be uncertain, due to concerns over how this new capacity
will be utilised. The National Grid report also highlights concerns over
the actual deliveries of gas, since whilst the potential sources of gas
supply look to be wide, due to a combination of the normal risks
associated with major infrastructure projects and dynamic nature of the
global LNG market, the actual quantities of gas delivered may be less
than anticipated.
Despite the concerns highlighted above National Grids final view
supports a higher view of imported gas supply, slightly counterbalanced
by lower supplies from storage. The forecasted gas supply (inc. storage)
is set to be approximately 73 mcm/d higher than September 2006 Base Case
assumptions for 2006/7. Although this equates to the demand forecast
being higher, the supply-demand balance is improved.
This increase in available supplies also has an impact of the safety
monitor. Since the total non-storage supply assumption of 395 mcm/d is
60 mcm/d higher than the equivalent figure used in the previous year,
the 2007/8 safety monitor calculation, results in lower monitor levels
of just 1.2% of all storage, compared with the equivalent 16% level used
in setting the 2006/7 monitors. This also means that there is no longer
a Safety Monitor requirement for Medium or Short duration storage for
2007/8.
This increase in potential supply has also had an impact on the
requirement for gas demand response which is lower than the 2006/7 Base
Case. Under the Final View assumptions, there is only a requirement for
demand-side response, from both CCGT and non-CCGTs, in cold winters
under low supply conditions.
Electricity
The 2007/08 winter outlook for electricity looks to be more certain than
the gas market, with no major changes made by the network operator, with
the notified generation background generally similar to that seen prior
to the 2006/7 winter. January 2008 will see the implementation of the
Large Combustion Plant Directive and the second phase of the Emissions
Trading Scheme (ETS II), though these factors should not significantly
affect the security of supply. So long as the electricity market
responds in accordance with the appropriate price signals, demand should
be met, even under harsh conditions.
During last winter the electricity market operations were characterised
by gas-fired generation being favoured over coal-fired generation,
whilst coal increasingly producing the marginal capacity. The result of
this is that gas demand from Combined Cycle Gas Turbine plants (CCGT)
was significantly above the level shown in national grids unrestricted
demand forecasts. In accordance with current fuel and carbon prices for
winter 2007/8 coal-fired generation is expected to be preferred to
gas-fired generation, this is reflected by forecast of CCGT gas burn
forecast to be approximately 54 mcm/d, a much lower forecast than was
outturn CCGT demand during Q1 2007, but is similar to the winter 2006/7
Base case. Whilst the gas market continues to be reliant upon imported
supplies, the swing in gas consumption by CCGT station continues to be
important in attaining a balance between gas supply and demand.
Gas demand
Demand forecasts suggest that due to the high price of gas, in
particular when compared with coal in the electricity generation market,
their will be limited gas demand, which suggests a level of
demand-response to prices. As shown in figure 1 latest forecasts suggest
that demand will be marginally higher, this is mainly due to a
reassessment of fuel prices and the result of this on consumption.
Over the peak months of winter 2007/8 it
is assumed that coal will be preferred to over gas, this is expected to
result in forecast power generation gas demand being close to the
minimum needed by the electricity sector on a high demand day. This
should result in reducing the extent of further reductions to gas
powered generation on high demand winter days. These assumptions are
supported by forward prices for the winter outlook, which suggests that
coal fired plants should become more economic to run than the gas fired
plants. January 2008 will see the introduction of two new directives (LCPD
& the EU emissions trading scheme) the later of these directives has
resulted in a considerable increase in the price of carbon, again the
market prices imply that the coal-fired generation should be more
economic than gas fired. In the case of a mild winter or high gas
supplies, it is possible that gas price may fall; this would be a result
of depression of weather sensitive demand, combined with higher carbon
prices which might prompt switching from coal-fired to gas-fired
generation.
As far as transportation capacity is concerned, it is thought that
transporters may limit the demand of interruptible customers in aid of
capacity management. Although, their also has been some market driven
demand reduction at times of high demand observed, which had reduced the
need to limit interruptible demand, which means bar the failure of
plants or unexpected peak demand-supply patterns, it is not anticipated
that a material level of demand interruption for transmission capacity
management in 07/08.
There is expected to be increased flows around the Easington area as
there were last year, this is due to supplies from the Ormen Lange field
through the Langled pipeline, and the Aldbrough storage facility.
Additional network investment is expected to meet baseline capacity
obligations in time for this winter.
UKCS gas supplies
Table 1 is generally the same as last
years findings, the minor changes were due to new developments expected
regarding this winter. National Grids final view regarding the UKCS
supplies includes a year-on-year decline of 24 mcm/d from existing
fields, which can be counterbalanced by incremental developments
totalling approximately 9 mcm/d. However, there is still an uncertainty
surrounding the volumes that will be available through incremental
developments, has a result of timing and commissioning issues.
In terms of the supply-demand analysis and safety monitor assessments,
National Grid have chosen a level of UKCS supply below the maximum
forecast when calculating the supply outlook. For the 2006/7 winter
National Grid consistently observed an availability of approximately
90%, and have therefore based the availability of 2007/8 gas supplies on
the same figure. One concern might be that this figure would be rather
optimistic if the midst of a severe winter, which might produce rather
more outages than previously experienced.
Conclusion
In conclusion, National Grid seems happy to suggest that the gas market
looks in good shape. With investments in various new pipelines and gas
infrastructure to increase gas supply and flexibility this winter the
outlook looks positive. The connection of the Langled pipeline to the
Ormen Lange gas field has been one of a number of developments which has
significantly improved the supply situation, other contributions of
supply and flexibility have been made from new storage facilities at
Aldbrough, Hole House Farms expansion and the new Dragon terminal at
Milford Haven. However as a note of caution, the new developments in
capacity will come on stream to replace the deteriorating UKCS swing
production, and new costs are expected to exceed that of previous field
production. And while there has been investment into the industry, there
are still uncertainties surrounding the market especially in relation to
imports from Europe, and the possibility of international gas price
movements affecting UK LNG imports. There always remains the possibility
of unlikely and unexpected events such as Hurricane Katrina, or extreme
cold weather in Europe which can divert LNG away from UK, and drive the
price of UK gas upwards. Finally, whilst recent investments have added
to the UK the potential to import and store larger amounts of gas than
in previous winters, the market is always susceptible to changes in the
global energy market and price changes, and with current weather getting
harder to predict, you never know entirely what awaits around the
corner.
Summary by Timothy Madden of MJMEnergy Ltd
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