On social media on Thursday shadow energy secretary Andrew Bowie said: “Sneaked out by OFGEM this morning, a warning for the first time EVER they cannot guarantee that demand will be met on a peak day in winter. Let’s be clear what that means. They cannot guarantee that homes will be warm, lights come on or industry function on a peak day this winter. And why? Because of an accelerated decline in domestic gas supply from the North Sea.”
A similar sentiment was echoed by opposition leader Kemi Badenoch appearing on BBC Breakfast on Friday (interview from around two hours 29 minutes in the recording): “Yesterday, Ofgem talked about gas demand and how we might not be able to handle a single peak day in winter.”
Evaluation
Ofgem’s assessment is based on a very specific scenario where not only does extreme weather push gas consumption to very high levels, but is also combined with the country’s biggest single source of gas going offline.
It found that in these “very rare stress conditions” Britain’s gas demand could be very slightly higher than the amount the grid is able to be supplied with.
But this would only be the case if a planned reduction in the capacity of a pipeline to Europe goes ahead. Ofgem’s announcement this week was intended to prevent that from happening, therefore ensuring that there will be more than enough capacity even in these very rare conditions.
The facts
Ofgem released a consultation paper on October 20 which is intended to help gas grid operator National Gas be compensated for a deal which prevents a pipeline which connects Britain to mainland Europe from reducing its capacity.
Gas demand
Ofgem assessed that “peak” gas demand during an extremely cold snap could reach 408 million cubic metres per day (mcm/d), based on calculations using figures since 2017. This is not the highest seen since 2017, which was 417 mcm/d during the Beast from the East in early 2018.
Gas supply capacity
Supplies of gas to the British grid come from a few different sources: UK North Sea production, Norwegian North Sea production, liquid natural gas (LNG) terminals, gas storage sites and pipes that connect Britain to Belgium and the Netherlands.
Ofgem assumes that between all these sources, Britain should be able to rely on up to 505 mcm/d of gas flowing into the system. This is a measure of capacity, rather than actual gas flows.
However one of the pipes connecting Britain to Europe was previously planning to reduce its capacity by 25 mcm/d. This is what Ofgem and National Gas are now preventing.
If that reduction were to take place – which it now appears it will not – potential supply would drop to 480 mcm/d.
This is still well above the peak demand that Ofgem modelled on an unusually cold day (408 mcm/d).
However as a precaution in these scenarios the system also has to plan for what if something goes wrong during a particularly cold snap.
Therefore Ofgem’s model assumes that the biggest single source of gas – in this case two neighbouring LNG terminals in Wales – go offline during that cold snap, removing 77 mcm/d from the supply.
This is why the scenario is so rare: Not only does it need an unusually cold snap, it also requires a major fault on the system at the very same time. The chance of both happening at the same time is low.
So, how much gas could be supplied in this scenario where not only has the reduction to the pipeline happened, but also the two Welsh LNG terminals have gone down? Ofgem estimates in that scenario supplies to the grid could be 403 mcm/d.
What will change with Ofgem’s current proposal?
The current consultation is part of a plan to keep the European pipeline’s capacity unchanged.
Over the 2020s, the capacity of Britain’s two interconnectors that tap into European gas networks, has reduced significantly.
There are two interconnectors, one abbreviated as INT and the other as BBL. The capacity of BBL was 45 mcm/d in 2020 and is today only 22 mcm/d. The capacity of INT was 73 mcm/d in 2020, falling to 61 mcm/d today.
But INT was planning a further 25 mcm/d reduction in October this year. It is this reduction that will now not happen due to National Gas and Ofgem’s plan.
So assuming INT does not reduce its capacity as planned, supplies should be able to reach 428 mcm/day this winter even if the two Welsh LNG terminals go offline. This is more than enough to meet Ofgem’s 408 mcm/d scenario, and also enough to meet demand in the event of a repeat of the Beast from the East (417 mcm/d).
This is a medium-term fix that Ofgem hopes will offset some current pressures, but “does not remove the need for further measures led by Government.”
What happens if there is a 5 mcm/d shortfall?
The Ofgem report does not say what it thinks would be the real-world impacts should demand be 408 mcm/d at a time when the system can only supply 403 mcm/d.
However National Gas, which runs the UK’s gas grid, does lay out more detail about what would happen in a more general emergency situation.
If things get very bad – although it’s not clear if a 5 mcm/d shortfall would lead to this, it will depend on the precise circumstances – a “Network Gas Supply Emergency” could be declared. This has never before happened in British history but could lead to factories being told to reduce consumption, and households being asked to use less gas. As a last resort households supplies might be managed.
Other margins
There are other theoretical supply margins that Ofgem has decided not to include in its modelling of gas supply in the scenario it sets out.
For instance the one remaining LNG terminal in the scenario has a theoretical ability to supply 73 mcm/d to the grid. However the most it has actually been observed supplying in the past is 61 mcm/d. Ofgem chose this second figure as a precaution. If it had chosen the first, it could theoretically make up the 5 mcm/d shortfall.
It is a similar case in storage which could theoretically supply up to 112 mcm/d. However, Ofgem said this is not a reliable measure of capacity as it assumes all facilities are “sufficiently full and able to deliver their maximum rate simultaneously”. Ofgem instead looked at the highest amount storage has supplied in the past, which was 86 mcm/d.
What has caused this erosion of supply capacity?
Ofgem sets out two reasons that the supply limits might be tighter now than in the past: The first has already been discussed: A reduction in the capacity of pipelines from Europe. This has happened incrementally since 2020.
The second is a reduction in production of gas from the UK’s North Sea which Ofgem puts down to “a combination of geological and commercial factors”.
The Conservative Party has been contacted.