Perfect storm for gas as cold snap ramps up energy usage

It is fair to say, as some have said, that the UK's gas supplies have been hit by a "perfect storm".

The first thing to stress is that this "gas deficit warning" from National Grid (LSE: NG.L - news) , which operates the UK's gas transmission system, does not necessarily mean the UK is going to run out of gas immediately.

Rather, it is a statement that the system is currently under-supplied and requires more gas, an "indication" to the market that the Grid would like more gas to be made available.

These warnings are relatively commonplace so far as electricity goes and, invariably, supply is always ramped up to meet demand.

The shortfall reflects both supply and demand issues.

On the demand side, obviously enough, cold weather has increased gas consumption by homes and businesses.

The UK usually gets through 300 million cubic metres of gas per day.

:: UK facing gas supply crunch as country gripped by big freeze

Currently, for the first time in six years, demand is touching 400 million cubic metres.

Yet there are also problems on the supply side.

There are three main ways in which the UK is supplied with gas.

The first is the UK's own natural gas production from the North Sea and the Irish Sea which, in December last year, provided 43% of gas supplies.

A further 44% comes from interconnectors between Britain and each of the Netherlands, Norway and Belgium.

The remaining 13% came via imports of Liquefied Natural Gas (Dusseldorf: LI5.DU - news) (LNG), which is landed at three terminals - Milford Haven and South Hook in Wales and the Isle of Grain in Kent - that are together capable of providing around half of the UK's gas needs.

The problem is that bad weather has created outages in Norway, resulting in a drop in gas flows from there, while problems at Bacton in Norfolk mean less deliveries of gas are arriving there via the interconnector from the Netherlands.

In theory, gas storage facilities should mean there is a ready supply in the event of supplies falling short elsewhere in the system, saving it from having to be bought at times of high demand when prices are liable to surge.

Yet the UK has less gas storage facilities than was once the case, mainly because ministers allowed the country's biggest facility, Rough, to close.

Rough, off the Lincolnshire and Yorkshire coast, had been operating since 1985 and accounted for around 70% of the UK's gas storage capacity.

At its peak, it was capable of supplying 10% of the UK's daily gas needs.

But it has needed constant maintenance in recent years and there have been safety concerns about the possibility of gas leaking from it.

Its owner Centrica (Frankfurt: A0DK6K - news) , the parent of British Gas, argued in June last year that it was no longer economic to keep the loss-making facility open.

This was accepted by officials at the Department for Business, Energy and Industrial Strategy after National Grid said it was confident there would be adequate gas supplies even if Rough were to close.

This was due mainly to the global glut of LNG.

Crucially, this was a view endorsed by the independent and highly-respected International Energy Agency, the independent global body that collects data on the energy industry.

In its Global Gas Security Review, published in October, the IEA said: "Once Rough is completely out of service, the country has surplus supply capacity to fill the gap, with IUK [the interconnector to Belgium] and/or BBL (Shenzhen: 002776.SZ - news) [the interconnector to the Netherlands] the likely sources."

So the problem has arisen largely from the fact that, with Rough having closed, the interconnectors do not appear to be working in the way bodies like the IEA assumed they would.

Would nationalisation of either Centrica and National Grid, as some unions have demanded, prevented this?

Not without enormous costs - which would have been passed on either to taxpayers or in household energy bills.

It is likely whoever was running the system, were it state-owned, would reach the same conclusion - it was not worth shelling out colossal sums simply to cover a once-in-a-decade risk.

The last such "gas deficit warning" was issued in 2010 when, in the middle of a cold snap, Rough was temporarily closed after a fire.

Arguably, the UK is lucky to have avoided a crunch like this until now.

The dash by both Labour and Conservative governments to decarbonise the UK energy market has seen some coal-fired power stations close before the end of their natural lives.

At the same time, the UK has been slow to replace ageing nuclear power plants, while renewables - which, during the last decade, have also been more expensive than conventional sources - provide energy only intermittently.

Gas was supposed to meet any shortfall.

That it did, very successfully - until this winter's exceptionally cold weather.