UK Gas Output Slump Helps Fuel Price Rally: Woodmac

UK gas production is down 28% year to date, helping fuel the current European gas price rally, said global natural resources consultancy Wood Mackenzie on Wednesday.

Total UK gas production for the January to August period amounted to just 17 billion cubic meters (bcm) down from 24 bcm over the same period last year.

Other factors have also contributed to the price rally, including record-high coal and carbon prices, booming Asian LNG demand, and limited growth in Russian pipeline supplies.

A production drop of the scale seen in the UK was driven by maintenance and new project delays. In particular, the three-week maintenance of the Forties Pipeline System in June resulted in the shutdown of supply from all 67 field users.

Additional work on other parts of the system throughout the year meant groupings such as Elgin/Franklin, Shearwater and ETAP have all been offline for much longer.

Operators have also been using this downtime to conduct their own maintenance programs, which has extended the three-week shutdown period at multiple hubs.

However, Wood Mackenzie expects UK gas production to recover through the remainder of the year. Indeed, August output has already climbed 72% over July. Still, the summer slump means overall 2021 production will be slightly over 27 bcm compared to 34 bcm in 2019 and 35 bcm in 2020.

'We forecast a rebound to 35 bcm in 2022. The recovery will be driven by the start-up of new gas projects such as Saturn Banks, and others that were deferred from 2020 as a result of the coronavirus pandemic. These include Arran, Columbus and Finlaggan. Infill drilling at large producers such as Elgin/Franklin, Tolmount reaching peak production in 2022 and Culzean remaining on plateau throughout 2022 will further contribute,' explained Wood Mackenzie.

The consultancy said that Norwegian gas production has also been affected by planned and unplanned maintenances. Continental Europe has been struggling to fill its gas storage ahead of winter and will continue to face tight market conditions throughout winter.

Booking additional LNG cargoes on a short-term basis amid growing Asian LNG demand will prove challenging. The UK’s coal capacity has shrunk to just 4 gigawatts - offering less switching potential in periods of high gas prices than previously.

'But of course, high UK coal-burn would be an unwelcome distraction as COP26 parties discuss climate change in Glasgow in November. We forecast UK and European gas prices to remain elevated at current levels throughout winter. UK producers will be keen to bring production back quickly in order to capitalise on the record price levels,' Wood Mackenzie added.

It noted that a recovery in UK gas production is critical for this winter. And going forward, investment in domestic gas supply remains crucial to ensure a smooth energy transition to renewables and new technologies.

(Anadolu Agency, September 8, 2021)


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