Low NBP prices increase gas use in British power sector

Low prices at Britain’s NBP natural gas hub led to an increase in the share of gas used for power generation last year. And new laws due to be enacted this year mean this trend could continue.

In 2014, gas-fired power generation accounted for around 30% of all British electricity production. This is an increase of three percentage points on the previous year.

In volume terms the impact was relatively slight. On average the country only used around 1 million cubic metre (mcm) of natural gas more per day for power generation last year than in 2013.

The difference was more pronounced over the summer, when NBP gas prices were particularly low and some fuel-switching became economic for fossil-fuel-fired power plant owners.

There was also a lot of coal-fired capacity offline for maintenance during the hotter months, having ran at near to capacity over the previous winter, adding extra demand for combined-cycle gas turbine (CCGT) production.

During the summer period last year gas plants provided on average 35% of British power generation, up seven percentage points compared to the same months the previous year.

Next year gas could see an even higher share of the mix, as from April there will be a substantial increase in the carbon support price (CPS) rate, from £9.55/tCO2e to £18.08/tCO2e, which is imposed on all fossil-fuel based generation. As coal produces more emissions than gas, the latter will become more economic by comparison.

In addition, many are expecting a glut of LNG vessels to Britain over the summer this year, as was the case this year. This has the potential to push down prices at the NBP in the second and third quarter next year and further boost the economics of CCGT generation. Ben Samuel