United Kingdom, (PressExposure) August 24, 2008 -- The impacts of the drive to cleaner fuels and the exhaustion of domestic gas supplies are already impacting on the UK Energy Market. Global Energy Advisory - a specialist energy think tank and advisory business â fear that UK businesses have not set energy strategies to avoid, at best, forthcoming higher prices, and at worst, frequent interruptions to power supplies.
EU renewable targets require that the UK uses renewable energy sources for 15% of total power, heat and transport needs by 2020. This will require around 30-40% of power generation to come from, most likely, wind power. Unfortunately, the wind doesnât blow all the time, therefore generation from wind turbines can be âintermittentâ at best. This will cause considerable engineering challenges at times of high or low wind to maintain adequate power supplies.
Global Energy Advisory also predicts that 13GW of new gas power stations will have to be built to replace predominately coal power stations that will close on New Years Eve 2015. These closures are due to another European Directive called the Large Combustion Plant Directive. With such fundamental changes necessary to the UK electricity generation infrastructure, it is far from certain that the required investment will be made in time to ensure that the lights will stay on. It is also highly likely that prices will continue to rise and not everyone will be able to afford the energy lifestyle that is enjoyed today.
Currently the UK power generation mix is roughly 40% gas, 40% coal, with the 20% balance from nuclear and a small amount of renewable generation. By 2018, Global Energy Advisory forecast that this could change to become approximately 60% gas, 20% coal 10% nuclear and the remaining 10% from renewable generation - short of the EU target. These dramatic changes will give power companies investment and logistical challenges, but more worryingly, it will lead the UK to further increase itâs reliance on gas imports which, by 2017, are predicted to be 76%.
So where does this gas come from?
Last year 67% of the UKâs gas, 67bcm, came from the North Sea, but this source is depleting and this year will account for only 62% of total consumption. Norway is an important gas supplier to the UK, but there is also heavy reliance, with some concern, on gas flows from Europe and from Liquid Natural Gas (LNG) sources. Although the UK has invested in pipelines and LNG terminals, these are often unutilized as the gas does not flow on to UK shores. Last year the Grain LNG terminal was only utilized 17% of the time and the BBL gas pipeline with the Netherlands only 40%.
So where is the gas going to?
Some countries, such as Japan, rely heavily on LNG as a vital source of energy and are prepared to outbid other countries to secure tanker supplies. Soaring costs have stopped new LNG production projects and the International Energy Agency (IEA) predicts current delays could lead to a short fall in global LNG supply as soon as 2012. Worryingly, the IEA has also turned its global gas focus to security of supply. The agency describes gas as âvulnerable and expensiveâ and notes that the world does not have a âstrategic storeâ of gas with the only global surplus existing in the LNG cargoes that transcend the globe: put very bluntly unlike oil, gas security of supply is inadequate and impossible to accumulate. The IEA also say that there is gas energy security only until 2015, by which time, Global Energy Advisory expects 30% of UK gas supplies to be LNG.
How Bad Can it Get?
The current European energy policy and the increasing dependence on foreign gas have put UK businesses and households at unprecedented risk. Factories and businesses will have to adopt energy risk management practices and find new ways of working if production and commercial operations are not to be impacted. Market reaction to the recent high energy prices has been to reduce costs and many firms are already shedding jobs.
But then what? Businesses particularly need to consider their energy future carefully and review or set a sustainable energy strategy [http://www.globalenergyadvisory.com/energy-risk-management.aspx] which identifies, and aims to avoid, the numerous energy pitfalls that lie ahead. As seasoned energy market and risk professionals, Global Energy Advisory can assist firms in this important task.