The UK government has no plans to intervene in the gas market through regulatory support for new storage facilities, Secretary of State for Business, Energy and Industrial Strategy Greg Clark has said.
Clark said in London Thursday the market was already providing sufficient gas security and optionality, meaning government intervention in the storage sector was not needed under current conditions.
"It is the role of the government to know when it should invest in a certain type of system insurance and we should recognize that it is just as much our role to decide when the benefits of buying more insurance are not worthwhile," he said.
Clark said one example of this is approach was in gas storage. "Here, we rely on the market [...] to deliver the necessary capacity based on price signals, rather than intervening to require a specific source of storage to be given and taking in the cost of that."
Ultimately it would be gas users that would bear the cost of intervention, he said.
"If ministers were to intervene to require for a particular source of supply, such as storage, the cost of doing so would fall to consumers through higher energy bills."
"While governments should always be willing to respond to changing circumstances, the success of our liberalized, liquid and low-cost gas market should tell us that the government should only intervene to guarantee optionality where it is strictly necessary," Clark added.
Clive Moffatt, chairman of the Gas Security Group (GSG), said Friday he was surprised by Clark's comments, given that a BEIS select committee only heard first evidence in a UK gas security review on October 31.
"It is a bit premature for the secretary of state to come to a conclusion on storage so soon after the BEIS select committee," Moffatt told S&P Global Platts.
Moffatt said the government's argument that the UK has sufficient import capacity was flawed.
"Just because you have capacity does not mean the gas will come," he said, adding that storage plays a critical role also in mitigating price spikes.
'BEAST FROM THE EAST'
Major energy users established the GSG last year following the closure of Rough as a storage site and against the background of the continuing decline in domestic gas production in western Europe.
The group intensified its lobbying of BEIS to provide support for new storage sites after the price spike on March 1 due to soaring demand during the "Beast from the East" cold weather system.
However, despite BEIS agreeing in mid-October to carry out the formal review of national gas supply security, Clark's comments suggest the government has already made up its mind.
"The UK has consistently enjoyed a high level of gas security over the last decade -- this is the upbeat lesson that I take from last winter's 'Beast from the East'."
"We enjoy a diverse range of gas supplies. The market has been allowed to choose a range of options for meeting the nation's gas demand and has procured them in an efficient way," Clark said.
USER CONCERN
Gas users, on the other hand, saw the "Beast from the East" as precisely an example of why more storage is needed.
The GSG last month said the cold snap was "not a one-off event" and that further disruptions were likely given expectations of high UK gas demand, an ageing gas grid and increasing import dependence.
Storage operators presented evidence outlining their concerns about the economics of new storage sites at the select committee hearing on October 31. During the hearing, Gas Storage Operators Group Chairman Roddy Monroe said a new long-term gas storage site in the UK would require the NBP seasonal spread profit margin to extend to 20 p/th -- double the current margin -- and potentially cost GBP1.4 billion ($1.8 billion) to build.
A committee report is expected to be produced by the committee at the beginning of 2019.
Since the closure of Rough, which had a working gas capacity of 3.1 Bcm/year, the UK's remaining medium-range storage can hold just 1.3 Bcm of gas.
As much as 3.9 Bcm in storage capacity is planned across numerous sites, but none has reached a final investment decision.
On Wednesday, the GMB labor union warned that the UK's diminishing gas storage was "not fit for purpose" and could trigger a winter heating crisis.
GMB National Officer Stuart Fegan said there was a "very real possibility" that industrial users would be required to limit their gas use.
"The government must now step in to defend our national interest to make sure consumers and industrial users are protected from volatile prices which insufficient storage brings," Fegan said.
