UK Industrials Keep Taking Gas
UK industrial consumers have not yet reduced their gas demand despite the high prices in the market, said Eddie Proffitt of the Major Energy Users Council.
He told NGW March 1 that some of his members had been contacted by their shippers urging them to downturn their offtake, but so far none had agreed, and none had been offered any incentive to do so, he said.
For a major industry to turn down heat, there would be economic consequences such as lost output. And high as the gas price is for within-day, they are not exposed to it, their gas supplies being typically priced off a a mix of day-, month- and year ahead prices, depending on their aversion to risk, he said.
Previously, this very tight supply-demand situation could be managed by interruptible contracts, which allowed the pipeline operator National Grid to turn off supplies to the largest users in exchange for lower transport prices. This translated into a £40mn/yr bill spread across all consumers. These however ended about seven years ago.
But since October 2016, following a regulatory change in the rules, consumers who want to contribute to security of supply can bid in to an auction, and reduce their consumption. The same system applies in power, where bidders are paid for the option, as well as when it is exercised. Gas users however are only paid when the option is exercised, he said.
In the worst case scenario, when there is not enough gas to meet demand, industrial users are switched off in order of size, largest first; and there is no compensation, he said.
Separately, ratings agency Moody's said: "Gas price spike may challenge smaller suppliers who are typically financed largely or entirely by customer deposits, with little or no long-term capital, and previous price spikes have led to the failure of some suppliers.
"If companies correctly predicted the volume spike and covered their position one week ago, when week-ahead prices were around 66p/therm, they are likely to have remained profitable. However, positions covered yesterday, when day-ahead prices were over 100p/therm, or today at intraday prices over 200p/therm, will have been significantly loss-making this week.”
In a sign that some end-users may be unfamiliar with the confirmation process, or resistent to reducing demand, National Grid posted on its messageboard to gas shippers and large users shortly after 1pm GMT March 1: "National Grid has a requirement to buy locational gas.... Trades accepted at an IP and confirmed in Gemini won't automatically adjust the nomination sent to adjacent TSO for matching. If your offer is accepted call 08701910636 ASAP to support you in completion of the 60 minute nomination window."
Meanwhile National Grid at 3.05pm further raised its forecast of gas demand in Great Britain to 410mn m3 for the 24-hr gas day that started 6am GMT March 1, from lower forecasts it gave out earlier on March 1. It contrasts with a seasonal norm of 301.4mn m3/d.
However NGrid also increased its forecast of how much supply would help balance the system on gas day March 1 to 414.9mn m3 at 3pm GMT, and said actual flows at that timepoint were 409.6mn m3. Gas flows from Holland through the BBL pipe had tripled from their morning rate to around 36mn m3/d by that point in the afternoon. In a sign that the system may be easier to balance on March 2, NGrid forecast (as at 1pm GMT) that day-ahead GB gas demand (so for gas on March 2) will be 395.3mn m3.