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100 comments on Will the UK Face a Natural Gas Crisis this Winter? (Part 1 of 2)
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100 comments on Will the UK Face a Natural Gas Crisis this Winter? (Part 1 of 2)
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Rune - This is excellent stuff! More please soon!
Dave - I think the message has to be pushed that the economics of insulating homes should be costed at peak winter gas rates (and at what they will be when 'Peak Gas' arrives).
Rune - what do you think the cost of a marginal winter therm of gas is now and might be in ten or twenty years time?
BobE
BobE
Day ahead 67 P/Therm as of Oct. 27th 2008.
Futures presently around 80 P/Therm (varies slightly with the length of the contract).
Oil price at US$60/bbl should result in a nat gas price that now should translate into approximately 70 P/Therm at energy parity.
(GBP has recently weakened relative to USD, and is expected to weaken more)
“Normally” nat gas trades at 60 - 70 % of oil at energy parity, which has been a historical trading range in the US liberalized market and this is also the price range found for most of the long term delivery contracts that are indexed towards oil.
As the UK market also is liberalized, and a liberalized market is far more responsive to changes, UK nat gas should (based on historical ratios) have been expected at 45 P/Therm at the beach (trading point)
Futures presently around 80 P/Therm (varies with the length of the contract).
This suggests that supply issues presently drive UK nat gas prices.
Weather (temperature) hugely impacts nat gas prices in a tight market, but assuming an upcoming “normal” winter, meaning the average of the last 6 – 7 winters, I would expect nat gas prices to go way north of 100 P/Therm (day ahead) at the trading point.
The marginal price (P/Therm) 10 or 20 years into the future (I did not know we had one ;-)) is hard to predict, but from what I understand of the European supply picture I would expect it to be considerable higher and it could approach parity with electricity.
In my view nat gas is still unbelievable cheap, presently running at approximately 2,2 P/kWh.
- Rune
Rune,
Thanks for an informative post.
As a UK resident, I have my concerns about the turbulent future of natural gas in the UK.
We have become too reliant on this valuable resource in the last 40 years, and now with the North Sea in steep decline, we are going to lose this local access to a fuel source that we now depend on.
The future looks increasingly like a bidding war between Europeans for natural gas on the global market, from suppliers such as Qatar and Russia.
For clarification 1 therm is 100,000 BTU or about 29.3 kWh.
Most UK suppliers are selling gas this October for about 4.0p per kWh inclusive of standing charges and 5% VAT. Most UK householders will burn between 60 and 120kWh per winter's day - depending on the level of insulation and the outside temperature.
Even greater profits can be made for the utilities that convert this gas into electricity in CCGT power plants. However, in the event of a natural gas shortage, will these plants will be quickly taken off line and the gas reserved for heating usage?
If the day ahead price is roughly 2.2p /kWh and expected to rise, then we can only expect more sharp rises in the price that the domestic consumer pays.
I've hedged my bets by fitting a woodstove with boiler in addition to my condensing gas fired boiler.
What was the cheapest, most abundant fuel by far, only 3 or 4 years ago, gas is now no longer as attractive.
2020
2020Vision
Thanks!
Most countries on the Continental Europe have entered into long term supply agreements with Algeria, Norway and Russia. Most of the European market has not been liberalized.
The German energy company E.On Ruhrgas is the largest foreign owner in Russian Gazprom and by coincidence their stake of 6,4 % in Gazprom closely matches German nat gas imports from Russia relative to total Gazprom production.
In 2007 Germany imported 35 Gcm from Russia. 6,4 % of a total Gazprom production of 560 Gcm approximates 35 Gcm.
The Germans have always had a long term strategy for their energy supplies and there is one phrase they often revert to “security of energy supplies”.
I don’t have any detailed information on the priorities during a gas shortage. From what I have understood consumers with interruptible contracts will first be shut off.
If the shortage gap is not closed by this, then electric utilities could be next in line. What then happens could quickly develop into something very ugly, as the UK presently has small generating margins and could result in part of the grid going down (black outs).
I think you (and those around you) soon enough will appreciate the woodstove.
- Rune
UK day ahead as of now 73,25 P/Therm.