ANALYSIS: UK gas could cope with prolonged Elgin outage

A comparison of flow and demand data suggests that the UK gas market could cope with a prolonged outage of Total’s Elgin gas field, although were the outage to continue into winter it could have a greater impact on prices.

Total is considering various options to tackle the gas leak at the field, which could include taking six months to drill a relief well.

The Elgin gas field sends its gas into the UK through the Shearwater Elgin Area Line (the SEAL line) into the Bacton SEAL beach gas terminal operated by Shell on the coast of Norfolk.

Gas from Shell’s Shearwater field also flows through the SEAL line.

Flow data from system operator National Grid shows that across the current winter (from October 1 to date) the average flow rate into the UK’s Bacton Seal terminal, including these two fields, was 15 million cu m/day.

Shearwater has brought forward planned maintenance to coincide with the problems at Elgin.

UK gas demand varies from around 200 million cu m/day in summer to around 400 million cu m/day in winter.

A prolonged loss of 15 million cu m/day throughout summer should not be a serious problem for the UK gas market, since the system is built to cope with much higher winter demands.

The UK gas market is also well ahead on its injections into storage this year. Traders have taken advantage of low spot prices to start their summer injections in early March, whereas normally they would start in April. This means that there will be reduced injection demand later in summer.

The UK’s main storage, Rough, now holds more than 1 billion cubic meters more gas this year than at the same time last year.

If a relief well is needed at Elgin, taking as long as six months, it could stretch into next winter.

If SEAL flows remained reduced into winter, when demand starts picking up again around October, that would be more difficult for the market.

However, a loss of 15 million cu m/day could be compensated for, even on high-demand days.

The UK, for example, has extensive regasification capability at its LNG terminals such as South Hook, Dragon and Isle of Grain, which has been used far below full capacity rates during the current winter. Dragon LNG in particular has barely been used this winter.

If the UK suffered reduced North Sea flows next winter, it could step up LNG imports to compensate, or imports from Europe through the Belgian Interconnector. The Interconnector was exporting from the UK much of the current winter.

Turning to imports, however, would require the UK to compete with other importers, including in the case of LNG with Japan, which could lead to higher prices.

Platts