The UK’s gas reserves are in decline to the extent that the country now imports gas and is predicted to be progressively more reliant on foreign supplies in the future.
The underground storage of gas is only possible in certain areas demonstrating suitable geology and geological structures. Caythorpe is one of a minority of sites with suitable conditions for gas to be conveniently and safely stored in naturally occurring underground gas storage reservoirs.
Gas storage facilities are becoming increasingly important as domestic and commercial customers want to be sure their supplies of gas are secure. The UK is also heavily reliant on the use of gas as the main supply for electricity generation.
The need for gas storage in the UK becomes increasingly important as the demand for gas increases and supply from the North Sea decreases. The increased risk of diminished supply to the UK will inevitably drive up gas and electricity prices. For this reason the storage of gas is essential for managing shortfalls in UK gas supply and for stabilising prices (both long and short-term).
The need for gas storage in the UK is strongly supported by the Government and industry regulators such as the Department of Energy & Climate Change (DECC) and the Office for Gas and Electricity Markets (Ofgem). The 2007 Energy Review specifically highlighted the need for increased availability and investment in gas storage.
The UK Government promotes a diverse energy mix, of which natural gas is a major component. Although Government energy policy seeks to promote more renewable forms of energy, it does recognise that gas will remain an important part of the energy mix for the foreseeable future. However, domestic gas production from the UK Continental Shelf (UKCS) is declining rapidly and the nation is becoming increasingly dependent on imported gas supplies. This has implications for the future security of UK gas supplies. Indeed, the latest figures published by National Grid (NG Ten Year Statement, December 2009) forecast that imported gas is likely to account for 46% of UK supply by 2010/11, with import dependency expected to increase to 69% by 2018/19.
With growing UK gas import dependency, gas storage facilities have an increasingly important role to play in terms of ensuring that the nation has secure supplies of gas that it can draw upon during periods of peak demand, and also to provide a buffer in the event of any disruptions to imported gas supplies. The ability of the UK to withstand such disruptions is though limited by the relatively low level of gas storage that currently exists. Concerns with regard to the limitations of UK gas storage within the context of ensuring a resilient energy system have been raised in Parliament on a number of occasions and Ministers have stressed the need for urgent investment in gas storage. A recent paper produced by the House of Commons Library on the subject of gas storage (Gas Storage, Standard Note: SN/SC/5010, 12 March 2009) confirms that the UK has only around the equivalent of 15 days of gas supply in storage (4% of average annual consumption), whereas Germany's storage represents around 99 days of supply and France's 122 days of supply (in excess of 20% of average annual consumption).
The situation with regard to gas supplies to the UK has also been brought into sharp focus by the cold weather during the 2009-10 winter. This required National Grid to issue a series of warnings (Gas Balancing Alerts) to power generators and industry regarding the use of gas so as to safeguard supplies to domestic consumers. Clearly, during a severe winter, such as that currently being experienced, inadequate gas storage combined with disruptions to imported gas supplies could have serious implications both for businesses and homes.
In view of the above, the Government strongly supports the development of new gas storage facilities to safeguard the security of UK gas supplies and has confirmed that such projects are in the national interest. The Caythorpe Gas Storage project will therefore make an important contribution towards this objective and will significantly increase UK gas storage capacity.