Economic Report 2018

ECONOMIC REPORT 2018

The contribution of different sources of UK gas supply is shown in Figure 4. LNG imports fell by more than a third in 2017 – a sharper fall than the 20 per cent reduction between 2015 and 2016 – as improved UKCS production resulted in a reduced need for external supply and growing Far-Eastern gas demand drew higher margins for shippers. Most of the UK’s LNG imports are sourced from Qatar (84 per cent), however there are a range of more minor LNG sources including Algeria, Norway, Trinidad and Tobago, Russia and the US, providing further evidence of increased flexibility in the UK’s ability to use imports to meet demand. This improved flexibility was evident during the recent cold snap in the first quarter of 2018, where weather conditions meant that natural gas imports reached a record high. Pipeline imports increased by 18 per cent during the quarter and flows through the IUK and Balgzand to Bacton lines during quarter one exceeded the total imported via these two routes during the whole of 2017. LNG also contributed to meeting demand, initially via short-term storage terminals and subsequently via imported cargoes. However, the closure of Rough as a seasonal natural gas storage site has raised questions over the adequacy of UK storage capacity and security of supply. Oil & Gas UK estimates that the remaining short-term UK natural gas storage infrastructure could operate for just over a week of “N-2 conditions” seen during that period (i.e. a ‘double jeopardy’ scenario whereby a cold spell occurs during a period of disrupted supply), providing up to 100 million cubic metres (mcm) per day. During longer periods of severely restricted gas supply, demand from the market would be met by increased LNG supplies, with increased market prices in a scenario such as this being sufficient to attract LNG shippers to the UK.

Figure 5. UK Gas Supply Scenarios – Additional Supply Required Over and Above Indigenous Supply

Aggregate LNG Imports - Daily Flow Storage - Delivery Interconnector - Delivery UKCS Production and Pipeline Imports from Norway - Daily Flow

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UK Gas Imports (Million Cubic Metres per Day)

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Typical Summer Day

Typical Winter Day Shock Low Production Extreme Cold Weather

Source: National Grid, Oil & Gas UK

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