The winter is shaping up to be more than ever as a clash of two irreconcilable commercial systems, one based on short term pricing and third party access, the other still basically oil-indexed and hard to penetrate. Add to this the uncertainties of the international LNG trade and the optimistic gas demand growth scenarios of recent years look more doubtful.
It is generally acknowledged that should the winter temperature prove cold enough for long enough then the British market will be short of gas, especially for power generation. In that event, continental supply will be tight, but probably not short. European gas merchants have the import capacity to cover all foreseeable eventualities this winter, and firm import contracts with their Dutch, Norwegian and Russian suppliers.
The problem for the UK is, first, lack of import capacity, second, the unwillingness of gas companies on the continent to respond to the short term price signals from the UK that in a perfect world would attract the required supply.
In the British market, as in North America, prices rule. On the continent, companies rule, not prices. This opposition will probably not persist forever, but it will certainly persist for the next year or two, until the slow advance of real TPA finally breaks down the old structures in Germany and elsewhere. The doubling of the Interconnector’s reverse flow capacity, due to take effect in early November, is another case in point. The Interconnector offers more capacity, but this capacity will only be used if the price in the UK is right, and the gas is available. The latter depends in part on the reaction of continental gas merchants, but also on the availability of capacity in Belgium to feed gas into the Interconnector. As we show on page 1, the scale of this capacity is doubtful. Furthermore, it will remain doubtful for at least four years, even as the capacity of the Interconnector is raised further in 2006.
Meanwhile, the LNG trade is getting ready to play a further wild card. The US and Britain will both be fishing in a relatively small pool of available supply this winter. US production capacity, damaged by the September hurricanes, is recovering only slowly, and the Atlantic arbitrage is decidedly against Europe.
All of this is good news for those governments around the world hoping to revive nuclear power over the coming years. High gas prices, possible supply disruptions and a cold winter can only help them.
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