Future UK Gas Security: a Position Paper
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Future UK Gas Security: A Position Paper Professor Michael Bradshaw Future UK Gas Security: A Position Paper 1 Find out more about us Visit our website for the latest information on our courses, fees and scholarship opportunities, as well as our latest news, events, and to hear from former and current students what life is really like here at WBS. We’re always happy to talk through any queries you might have. T +44 (0)24 7652 4100 E [email protected] W wbs.ac.uk/go/mbalondon Join our conversation @warwickbschool wbs.ac.uk/go/joinus facebook.com/warwickbschool @warwickbschool warwickbschool 2 Future UK Gas Security: A Position Paper Contents Executive Summary 1 Introduction 3 Midstream Security Challenges 4 Downstream Security of 1.1 A Supply Chain Approach to UK Gas 3.1 Import Pipelines Demand Security 3.2 Onshore Pipelines 4.1 The Current Role of Natural Gas 1.2 Defining Energy Security 3.3 LNG Import Terminals 4.2 UKERC The Future Role of Natural 1.4 The EU’s Energy Security Strategy 3.4 Gas Storage Facilities Gas 1.4 Defining UK Energy Security 3.5 Interconnectors to Continental Europe 4.3 National Grid’s Future Energy 3.6 Interconnection to Ireland Scenario 2 Upstream Security of Supply 3.7 The National Balancing Point 4.4 Other Views in the Future of Gas 2.1 UK Gas Security of Supply 3.8 Future EU/UK Gas Governance 4.5 Decarbonised Gas 2.2 Increasing Import Dependence 3.9 Midstream Brexit Challenges 4.6 Brexit and the Future Role of Gas 2.3 The Role of Russian Gas 2.4 Production at Groningen 5 Conclusions: Brexit and Future 2.5 Prospects for the Future UK Gas Security 2.6 Exports and Interconnection 2.7 States and Markets References 2.8 Assessing UK Gas Security 2.9 Security of Supply Brexit Challenges About UKERC This report is supported by The UK Energy Research Centre (UKERC) the ESRC Impact Acceleration carries out world-class, interdisciplinary Account (Grant reference research into sustainable future energy ES/M500434/1) systems. It is a focal point of UK energy research and a gateway between the UK and the international energy research communities. Our whole systems research informs UK policy development and research strategy. UKERC is funded by The Research Councils Energy Programme. For more information, visit www.ukerc.ac.uk Future UK Gas Security: A Position Paper 3 Executive Summary Natural gas plays a critical role This report deploys two aspects of previous deploys a supply chain approach to analyse in the UK’s energy system, UKERC research on UK gas security: first, three dimensions of future gas security: upstream security of supply, midstream providing twice as much a supply chain approach to assessing UK gas security; and second, a whole systems infrastructures, and downstream security of energy as electricity, thus the approach that places current and future demand. secure and affordable supply gas demand within the context of the of natural gas is an essential decarbonisation of the UK’s energy system. Upstream Security of Supply element of UK energy This is because there are key uncertainties In a relatively short period of time the UK security and a key objective in the wider system that have important has gone from being self-sufficient to being of Government policy. The implications for future gas demand. It is a significant importer of natural gas. Today the UK imports about half of the natural gas starting proposition for this in this context that the Brexit decision has created additional uncertainty at a time that it consumes, but with falling domestic report is that Brexit is coming when the UK energy sector needs to make production the level of import dependence at a time when there are critical investment decisions. In the current is set to increase during the 2020s. The already major challenges to situation we can conceive of a ‘Brexit UK benefits from a diversity of sources of the UK’s future gas security. Interregnum’ whereby important decisions supply and has more than sufficient physical and policies are delayed because of the infrastructure to import the gas that it demands of the Brexit negotiations. needs; however, growing import dependence does expose the UK to the volatility of the This report has three objectives: wider European gas market and the global market for Liquefied Natural Gas (LNG). In • To identify the key challenges facing the the context of Brexit, this report reached UK’s natural gas market; four conclusions. First, that in today’s • To understand the role that EU policies and liberalised market there is a limit to what the institutions currently play in the operations UK government is willing and able to do to of the UK’s natural gas market; and, ensure physical security of supply. Second, • To identify the potential impact of at present, the majority of the UK’s gas Brexit and the key issues that should be imports come from with the EU’s Internal addressed in a post-Brexit ‘UK Gas Security Energy Market (IEM), which is supplied by Strategy.’ both indigenous and non-EU sources. Third, if, in the future, the UK were outside the IEM Energy security is one of those terms that has it would not benefit from energy solidarity spawned a substantial academic and policy measures or the EU’s energy diplomacy; literature seeking to define and measure it. equally it would be unable to influence the This report uses a definition from former EU’s energy policies. However, because of its DECC’s (2012) Energy Security Strategy that: integration into the northwest European gas “energy security is about ensuring that we market, its gas security would be significantly have access to the energy services (physical affected by the success or otherwise of the security) at prices that avoid excessive EU’s policies and actions. Finally, in the face volatility (price security). It is also assumed of falling domestic production, it is likely that the future role of gas must be compliant that the UK will become more dependant on with the Climate Change Act (2008) and imported LNG, which will expose it to global its associated Carbon Budgets. The report price competition and volatility. 4 Future UK Gas Security: A Position Paper Midstream Security of Supply Downstream Security of Demand future gas demand; the prospects for the The midstream includes the hard The majority of studies of energy security commercial deployment CCS/CCUS; and, the infrastructure: the gas pipeline system have focused on upstream security of fact that uncertainty over the future role of (onshore and offshore), the three LNG supply, but more recently, as the low carbon gas acts as a disincentive to investment in terminals, the various gas storage facilities transition has gathered momentum, there the current infrastructure. Brexit complicates and the three interconnectors. It also includes has been increasing interest in security of matters due to uncertainty over any future the soft infrastructure of the National future demand as a challenge to the integrity realignment of climate change policy and Balancing Point (NBP) that is the virtual of the gas supply chain. At present, gas the carbon trading system. More generally, trading location for the sale, purchase and demand is split three ways between power the ‘Brexit Interregnum’ stands in the way exchange of natural gas in the UK, and the generation, domestic consumers (for heating of a ‘gas by design’ approach that lays out a gas governance regime that includes the UK and cooking) and industry (as a source of clear role for the industry in the low carbon regulator (Ofgem) and the EU Organisations heat and a raw material). Since the 1990s, transition, rather than the current ‘gas by (ACER and ENTSOG) that regulate the UK’s the switch from coal to natural gas has default’ approach that assumes that the participation in the IEM. The midstream is played a major role in delivering a large part natural gas industry can fill the gap when critical to ensuring gas security, but even of the UK’s fall in Carbon Dioxide emissions. there are policy failures elsewhere. without Brexit it faces significant challenges So much so, that the UK has limited that result from rising import dependence, remaining capacity to use gas to decarbonise Brexit and Future UK Gas Security the consequences of the low carbon energy the power generation mix. At the same time, Today natural gas is the most important transition and the aging of assets. The around 85% of UK households use natural source of energy for the UK, but future three combine to create a situation where gas for domestic heating. But, if the UK gas security could be challenged by the new investment is required to increase the is to meet its ambitious decarbonisation medium-term prospect of increasing import flexibility of the system at a time when there is targets it must find a low carbon source of dependence, due to declining domestic growing uncertainty over the future role of gas heat, which will have a significant impact production, and the longer-term prospect of in the UK’s energy mix. Brexit introduces a new on future gas demand. Both industry and falling demand due to climate change policy. set of concerns and implications. It is widely academic research shows that without a This creates a degree of uncertainty that accepted that the UK’s membership of the means of mitigating the carbon dioxide makes it difficult to justify investments in the EU’s IEM has enhanced energy security and emissions from natural gas combustion there supply chain to maintain existing capacity, benefitted consumers.