STRENGTHENING THE UK’S ENERGY SECURITY: MAJOR ENERGY USERS URGE GOVERNMENT & OFGEM TO SET TARGET FOR GAS STORAGE
The UK Government must set a timetable for new gas storage capacity to commit to construction and ensure the country can maintain its energy security during gas supply shocks and volatility associated with intermittent wind power generation. This is the main conclusion from an independent survey of some of the UK’s largest users of gas, commissioned by a cross-section of interested parties involved in the UK gas industry, including EEF The Manufacturers’ Organisation, the Energy Intensive Users Group and the Chemical Industries Association.
The majority of the companies surveyed, representing 12.5% of UK manufacturing industry’s annual gas demand and including INEOS, Tata Steel, Outokumpu and GrowHow, also said that the UK Government should establish an enhanced storage Public Service Obligation, which requires utilities to hold in store a set proportion of their gas sales and is common throughout mainland Europe.
The survey also indicated that companies do not believe that OFGEM’s complex new gas balancing plan, designed to deliver more gas storage, will work. On the contrary, it may result in intensive process manufacturing companies prioritising mainland Europe over the UK for future investment because companies require a high security of gas supplies. The Government’s current plans still envisage the possibility of future gas supply interruption, accompanied by uncertain levels of compensation.
Steve Radley, Director of Policy at EEF The Manufacturers’ Organisation, said: “This survey highlights the importance industrial gas users place on the physical security of energy supplies and the role that storage plays in delivering it. Manufacturers see compensation as a last resort and not as solution to the growing gas security challenge. So the survey is a challenge to both the government and the regulator to address the barriers which are holding back investment in this crucial area.”
Laura Cohen, Chief Executive of the British Ceramic Confederation, a trade association covering about 100 British manufacturers and a member of the Energy Intensive Users Group said: “The ceramic industry, and indeed other sectors of the British economy, relies upon secure and affordable energy supplies. Whilst our members are constantly seeking ways to improve the energy efficiency of their operations, interruptions to gas supplies are financially catastrophic to their business.
“OFGEM’s current proposals to amend the gas market framework and indeed the Government’s own statements about more pipeline and LNG import capacity do not give our members sufficient assurances about their long-tem energy security. More physical storage capacity needs to start being built in the UK market within the next two years and there needs to be a requirement for gas suppliers to have sufficient contingency reserves. This contributes to more stable prices and a more stable environment for UK manufacturing.”
Jeremy Nicholson, Director of the Energy Intensive Users Group said: “This survey highlights the importance industrial gas users place on the physical security of their energy supplies and shows how critical a factor storage would be in supporting availability of gas in a distress situation. It is vital that the government and OFGEM take the opportunity to address the barriers which are holding back investment in this crucial area. Inadequate regulatory oversight failed in the case of the financial sector and we are determined this is not allowed to happen with the country’s critical energy supplies.”
George Grant, Chairman of Gateway Storage Company, an independent storage development company, said: “Major utilities and other potential storage investors have made it clear to us that the balancing mechanism proposals do not deliver the necessary and sustained storage investment signal. This is why we now advocate that OFGEM should immediately move to developing a Public Service Obligation framework for the UK, so it can be implemented speedily if it proves necessary.”
A Public Service Obligation (PSO) obliges gas suppliers to hold in store a set proportion of their gas sales and it is a tried and proven market methodology used throughout Europe.
The UK Gas Security survey was undertaken by the research company ComRes Ltd, between June and August 2011 (online interviews with gas experts in 20 high energy users). The survey report, which was also supported by the British Ceramic Confederation, the British Glass Manufacturers Confederation, the Food & Drink Federation and the Confederation of Paper Industries, has been shared with OFGEM, the Department of Energy & Climate Change and the Department of Business, Innovation & Skills and will be shared with parliamentarians and other interested parties.