Ivan Olzack , Oxera
Despite longer-term policies to decarbonise the economy, UK dependence on imported gas is growing, driven in large part by gas use in the power sector and reflecting the relatively low cost of gas-fired generation and the lower carbon intensity of gas relative to coal. While current global gas supplies appear abundant, the prospect of a recovery in global conomic growth, rising UK import dependence, and uncertainty over the timing of certain future gas infrastructure projects remain problematic issues for policy-makers concerned about security of supply.
This paper examines the role of gas storage as a source of flexible gas, and a method by which to manage the risks to gas security. The level of storage in the UK is compared with that in other European countries with different market mechanisms. In order to assess the commercial incentives to invest, the number and type of prospective storage projects are considered in relation to the price signals provided by the market, the transparency of those price signals, and the considerable uncertainty implied by plausible gas market scenarios.
The assessment of incentives provided by market prices is followed by an examination of the current incentives provided by policy-makers, and potential conflicts between security of supply and environmental policies, as well as the interactions between the licensing and leasing regimes. This is used to propose a framework with which to understand policy-makers’ options for reform and the range of costs and benefits under alternative solutions.The economics of gas storage investment - Presentation.pdf 193.83 KB