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Press Release20th Dec 2021

Gas price surge: OGUK highlights how the UK gets its gas supply

The UK faces a sharp reminder of the need to maintain its own natural gas reserves this week with demand soaring due to low winds and an imminent cold snap – all coinciding with Europe-wide shortages caused by Russia cutting the gas it supplies to Germany. 

In the UK the weather conditions meant 62% of the nation’s electricity was being generated by gas on Monday compared to a normal level of about 40%. This may increase as the weather bites. 

About 5% more was being generated by coal after some of the UK’s remaining coal-fired power stations had to be fired-up to fill the energy gap. Another 8% of the nation’s power was being imported, mostly from Belgium, the Netherlands and Norway, according to datafrom the National Grid. 

European gas prices had jumped more than 8% by Monday afternoon. The prices were high enough to draw LNG cargoes back to northwest Europe: Asia has been competing fiercely for winter gas, as it has low storage capacity. 

In the UK homes, offices and shops accounted for about two thirds of demand while power generation and industry accounted for the other third as of midday December 20. 

This week’s surging UK reliance on gas is due to a combination of low winter temperatures and very low winds – linked to an area of high pressure due to remain over the UK until late Wednesday. 

Those conditions coincide with a sharp decline in supplies of Russian gas to Europe. Reuters reported on Sunday that deliveries to Germany through the Yamal-Europe pipeline had fallen from a long-term average of about a million cubic metres per hour to 35,000 cubic metres. 
 
A rapid rise in gas prices in Europe in 2021 has already caused power price rises, concerns about the knock-on effect on inflation and triggered the collapse of suppliers in Britain. 

Europe’s increasing reliance on Russian gas is prompting strategic concern.  On Monday the Financial Times published a letter from Paul Bledsoe, a former Clinton White House policy expert, pointing out that the EU now got 60% of its gas imports from Russia “directly funding President Putin’s regime.” 

The latest UK government trade figures show that the UK’s dependence on Russia is also increasing. In the year to the end of June this year, the UK spent £3.2 billion importing Russian oil and another £524 million on imported Russian gas. 
 
The UK’s offshore oil and gas industry is accelerating the greener technologies needed to achieve net zero, such as hydrogen, wind and carbon capture and storage. But this latest energy shortage shows that UK-sourced gas and oil remain critical to ensuring the UK’s lights don’t go out while those newer energies are scaled-up.  

Will Webster, OGUK’s Energy Policy Manager said: “The electricity powering people’s homes depends on 30-plus gas-fired power stations – they are the backbone of the UK’s power system. 

“This week we have a combination of cold weather, which is pushing up demand, but low winds. Gas provides the flexibility the system needs in these circumstances. 

“Our industry has risen to the challenge admirably, but it shows how the nation depends on a reliable supply of gas. The UK’s offshore industry still supplies about half the gas needed by the nation and that gives us extra energy security compared with many other nations. 

“There is currently no technology that can substitute for gas and provide us with the energy needed to generate electricity and heat our homes, so it is vital for the UK to maintain its own supplies and to invest in new technologies like carbon capture and storage.” 

​GAS FACTS – BACKGROUND INFORMATION 

Gas is crucial to UK homes and businesses. Over 22 million households are connected to the gas grid – meaning they have gas boilers for heating and usually hot water as well. In 2020, 38% of the UK’s gas demand was used for domestic heating, 29% for electricity generation and 11% for industrial and commercial use. 

How much gas do we use? In 2020 the UK consumed 74 billion cubic metres of gas – about 1,100 cubic metres of gas for each of the UK’s 65m citizens. 

Where does it come from? The North Sea, or UK Continental Shelf as it is more properly known, supplied all the UK’s gas needs till around 2004 but this proportion has been dwindling because older gas fields have become uneconomic and new ones have taken a long time to come on stream. Last year about 48% of UK gas came from the UKCS – and this is projected to keep declining at about 6% a year unless more fields are opened. Without additional investment, by 2025 domestic gas will only meet around one third of demand 

By 2027 less than a third of the gas consumed by the UK will be home-produced – unless new fields come on stream. That means the UK will be even more dependent on imports and volatile global markets – in a world where demand is surging. Norway is a key supplier of natural gas for the UK. In 2020 about 27 billion cubic metres of gas were imported from Norway by pipeline. Another 18 billion cubic metres were imported as liquefied natural gas of which 9bn cubic metres came from Qatar and 3bn from each of America and Russia. 

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