Gas Storage

Securing the future of the UK energy market

Gas is the single most important fuel in the UK’s energy mix today and is now recognised to be at the centre of a low carbon future.

The closure of many ageing coal and gas power stations has created an increasingly tight electricity market. Coupled with increasing intermittent renewable power generation, the need for new gas powered generation to support the electricity industry is evident. This has been highlighted by the government who believe 15GW of new gas powered generation is needed by 2030.

However, the UK’s secure indigenous supplies of gas are in sharp decline and relying on the global market for imports brings with it new supply risks and price shocks as witnessed over the last few years.

Delivering energy security is the number one priority for DECC. Gas storage can make a significant contribution to achieving this by ensuring that gas supplies are maintained at times of major supply or demand shocks. It also protects consumers from price spikes ultimately reducing overall gas bills; therefore gas storage is vital for the efficient operation of the UK energy markets.

However, in recent times the market value of storage has significantly deteriorated resulting in extremely challenging conditions for operators. This has led to the withdrawal of some existing capacity and the stalling of investment in new facilities; unless this is addressed by policymakers and addressed urgently, the Gas Storage Operators’ Group believes that further reductions in storage capacity are inevitable. The fact that unlike other types of energy infrastructure, once gas storage facilities have been decommissioned, they are inevitably lost for good makes this issue even more pressing.

This paper identifies the multitude of benefits that gas storage provides to the energy market and outlines those benefits that are are not captured by the current commercial arrangements; these ‘societal’ benefits include the contribution to security of supply (or the insurance value), the value of reducing customers’ bills, and the avoided network investment. It also provides an explanation as to why the market value for gas storage has deteriorated. While these benefits of gas storage remain unrecognised it is highly likely that sub-optimal levels of storage capactiy will be available to the market, resulting in diminished physical and price security, and as this report explores, the effects of this will be felt at both societal and economic levels.

If this outcome is to be avoided policy makers need to take action now to introduce mechanisms and fiscal regimes that fully reflect the true value of gas storage to the UK energy market.

This paper is aimed at policymakers and key stakeholders who have an interest in the continuing secure and efficient operation of the UK energy market.