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The escalation of Russia's gas dispute with Ukraine just as Europe freezes under the lowest temperatures of the winter has once again highlighted the risks of a European energy crisis. Supplies of Russian gas have been cut to many countries in eastern Europe and the Balkans, with Bulgaria, Romania, Greece, Macedonia and Turkey all having their Ukraine-routed Russian gas supplies halted. Supplies to western Europe have also been disrupted, with Germany, France and Italy reporting sharp reductions in flow pressure.
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Although Britain has so far not been affected, it is potentially at great risk of disruption. Many western European countries are insulated from supply disruptions by substantial gas stores. France and Germany, for instance, have gas storage capacity of over 20 per cent of their annual consumption. In contrast, the UK, the world's third largest gas market, has a storage capacity of just 4 per cent of annual consumption. This represents around 15 days of normal consumption, although the winter cold snaps could exhaust the stored gas in under five days.
Roland Wessel, chief executive of StarEnergy, highlights two reasons for the UK's comparative lack of storage capacity. Firstly, having enjoyed plentiful North Sea gas for decades, no one foresaw the rapid decline in reserves that will see the UK shift from being a net exporter to an importer of 50 per cent of its gas by 2010 and 80 per cent by 2018. Secondly, obtaining planning consent for gas storage facilities is a tortuous process. StarEnergy has been developing onshore storage since 2000, but has only completed one project due to the time required to obtain consents.
Mr Wessel fears that the UK will face a gas supply shortfall if it doesn't increase its storage capacity. "It's like watching a slow motion train wreck. It might happen this year, it might happen next year, but gas is a depleting resource and there will be a crisis at some stage," he warns.
By converting its Bulgarian offshore Galata field into a gas storage facility, Melrose Resources has positioned itself perfectly to benefit from Europe's supply disruptions, and its shares remain good value at 221p. Portland Gas's shares surged 50 per cent on news of the disruptions, although funding concerns continue to cloud its Dorset storage project, and its shares remain high enough at 73p.
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
