Tuesday, 28 June 2022

'Ask C@W': your energy questions

Nope, we're not setting up in competition with Martin Lewis: but a couple of BTLers have raised some specific energy questions of late, so here we go with another issue of the 'ask C@W' energy helpline. 

Won’t the lack of LNG landing terminals in Europe mean that the UK will be alright? If the gas can’t be physically landed in mainland Europe and the UK - Europe link only has so much capacity then won’t that mean lower gas prices through winter in the UK?  (Al)

Basically, yes, that's correct, although with absolute prices being sky-high whatever the physical sufficiency and price relativities, the definition of "will be alright" could be queried.  UK (also Spain) is well served with LNG regas capacity and both countries are enjoying lower wholesale gas prices than the continentals, exactly as market logic would predict.  Correspondingly & likewise, the UK is exporting as much gas as the pipelines to the continent can manage, based on that clear price differential.  There's every reason to assume this will continue through winter; including the exports unless things get so bad that HMG introduces rationing &/or export restrictions. 

This sufficiency of LNG capacity is a great free-market success story that we've written about before, contrasting with the dismal failure of central planners, particularly in Germany and, to some extent in France.  Italy ought to be better off, too, but local planning laws there are skewed 99% towards NIMBY considerations and generally fatal for building regas.

We're exporting a bucket load of power through interconnects to Europe. Wonder who is doing the checking and paperwork forms on the receiving side to make sure it is up to scratch?  (Sparky)

Same things as gas, with the added frisson for France that half their nukes are closed for safety reasons, pending regulatory review of their endemic corrosion problems (and of course cooling-water from shallow rivers being too warm in summer, as usual.)  Oh, and nobody gets hung up about import-export paperwork.  Ireland, utterly dependent on UK for energy trade, would grind to a halt in a day or two if anyone were to get sticky about that.  (I know what you're thinking ... Time to play hardball ..?)

What’s happening with Rough storage - are there any plans to commission it before winter?  (Al again)

Not a chance: it would take years.  I'll post a longer 'history of Rough' another time - it's a fascinating case study.  For now, we can say that Centrica, once big free-market advocates but latterly joining the ranks of the shameless subsidy-seekers, have been touting for government money and/or RAB approval for something, anything, to allow them to avoid writing off Rough and taking the big decommissioning hit - very expensive indeed.  Before Ukraine they were peddling an implausible scheme for using Rough to store hydrogen on a seasonal basis; and CO2 before that.  Needless to say, Putin's War being the latest headline grabber, it's now Centrica's latest roll of the dice.  Failing that, it'll be a proposal to convert it into an offshore Nightingale Hospital; or asylum-seeker detention centre, or something.  Anything.

They were such a laudable enterprise once.  


Addendum:  anon asks BTL below - 

has Gazprom contracted to deliver any gas for this coming winter? If so, with whom? If they have contracted to do so, to what extent does it mitigate the risk of Russia’s deciding to turn off the taps?

Yes they have, in large quantities, to most of their traditional wholesale customers.  Some of the latter have courageously refused to play Putin's "pay in rubles" game (a meaningless trick in economic terms, designed only to humiliate) and been unilaterally cut off.  I am guessing Gazprom has made some utterly ludicrous legal claim they were 'in breach of that new (unilaterally imposed) payment term' - there are plenty of whore lawyers in Europe who'll frame the case for them - and will claim the contracts have thereby been terminated.  But the craven realistic ones in Germany, Italy et al who've knuckled under still have their contracts in place.  I've yet to learn how either side is treating Russia's big cut in Nord Stream 1 volumes: it's possible (being summer) that these haven't impacted on contractual volumes per se, but only the amounts coming forward for the spot market: in which case no contractual issues would arise.

The biggest importer, Germany's Uniper (heir to Ruhrgas), has brazenly and loudly stated that it fully intends to carry on importing for the many years its Gazprom contracts have still to run.  What it really means is, "until you pass a law to stop us - and compensate us, kindly don't forget the compensation".

Will Gazprom consider itself 'contractually bound' to deliver?  No!  They'll do exactly as they are told.  As a matter of history, Gazprom has actually been a very reliable supplier over the decades; was initially (i.e. when the invasion first started) very keen not to burn any contractual boats - not least because they wanted to keep their powder dry for a legal challenge to Germany's prompt kiboshing of Nord Stream 2; and is always punctilious in terms of talking the language of 'inviolable contracts blah blah'.  Pft.  Meaningless in today's circumstances.    

Addendum 2:  further Q&A has developed BTL.  And our learned friend Mr Wendland has pitched in, too. 


Anonymous said...

Thanks, good to get answers from people who know what they’re talking about.

Question: has Gazprom contracted to deliver any gas for this coming winter? If so, with whom? If they have contracted to do so, to what extent does it mitigate the risk of Russia’s deciding to turn off the taps?

Clive said...

It has been one of the few laugh-out-loud gifts that keeps on giving to watch how, pretty much since the start of the year, UK electricity exports (via the interconnectors) have been just about all the cables can carry. Not from Europe to the UK, but from the UK to Europe. 5GW flat out, for hours and hours at a time isn't uncommon.

If the second circuit in the 2GW UK/France interconnector was operating at full capacity, it would have been north of 6GW I suspect. With no end in sight.

Makes all those "the lights will go out 'cos Brexit" scare stories look like, well, just that. While the media getting hopelessly muddled about facts is a man-bites-dog story, it makes me cringe just how little expertise there is in the mainstream media on just any subject you could mention. Making sh1t up isn't merely frowned upon, it seems positively encouraged (hence CU's well-timed "Energy Market for Dummies" post here, to try to keep some vague hopes of accuracy and information alive).

Nick Drew said...

anon - your qn appended to the main post

Anonymous said...

"with the added frisson for France that half their nukes are closed for safety reasons, pending regulatory review of their endemic corrosion problems"

Those nukes being the snappy new 3rd gen design that France has never quite got working properly, but that they managed to sell to the UK for our future needs? The ones where the castings people (le Creusot Forge?) fiddled the data so they passed specification tests?

I curse Blair for many things, but his decision to stop new nuclear in 1998 was one of his worst - at one stroke the supply of new nuclear engineers ceased.

Anonymous said...

This is fun, the author makes all the right noises but tells it straight.


"Another oft-mentioned solution for replacing Russian oil and gas, and generating energy that is cheap and does not impact carbon emissions, is to ramp up nuclear power production. This sounds straightforward, but light-water reactors tend to operate on enriched U-235 uranium. While only a tiny fraction of uranium is mined in Russia, nearly 50% of it is enriched by a subsidiary of the Russian state-owned Rosatom, and another 15% by its Chinese counterpart CNNC. If the entire Russian energy sector were to be sanctioned (rather than the mere sham fights about Russian oil and gas), half of the nuclear reactors on this planet (presumably those of the West) would go cold."

"If we simply go down the route of renewables as discussed now, we exchange dependency on Russia for hydrocarbons with a dependency on China for rare earth minerals. The 15 ‘lanthanides’, together with scandium and yttrium, which are known as rare earth metals, are essential for producing permanent magnets, without which robots, fuel cells, batteries or wind turbines remain a distant dream. It is well known that China is controlling approximately 70% of global output of these materials, and that it is not averse to using them as a tool of foreign policy, as Japan has already learnt to its detriment. I am not sure this is significantly increasing supply stability in the long term."

Btw I wonder what's going to happen with the Workington coking coal mine? It's a real canary in the aforementioned as to how serious UK elites are about keeping heavy industry onshore. Looks as if Cambo will be a goer despite wee Jimmy.

Meanwhile "China’s premier has called for increased production of coal to stave off mass blackouts, as early summer heatwaves have prompted record electricity usage."


DJK said...

So what about the G7 plan to impose a maximum price level on Russian oil and gas?

Nick Drew said...

DJK - that's covered by my perennial cry: "Germans don't understand how markets work"

Absolutely un.be.lie.vable

the big oil traders are laundering all this stuff and making fortunes

Anonymous said...

ND - by laundering I presume you mean selling Russian oil as from some other country and avoiding sanctions that way?

I wonder who these cunning and unscrupulous middlemen could be. That must be very lucrative.

Anonymous said...

If the Russians broke their contracts - i.e. Putin told Gazprom to cut off the gas - it seems unlikely that the Russians would accept any court verdict against them. Wouldn't they just say "F.O."?

Yet Another Chris

Anonymous said...


Anonymous said...

Anon - you mean the company founded by Marc Rich is STILL crooked? I'm shocked, shocked.

Anonymous said...

to be fair, anyone wanting oil concessions in Africa is going to either have to pay bribes or not get the business. I imagine Africa may not be the only place either.

Anonymous said...

"In June, India has bought 1 million barrels of Russian oil a day on average, compared with 30,000 in February, the WSJ noted"

A small increase ;-)


Bill Quango MP said...

Who are India selling it on too?

A great comment on the previous post. Along the lines of how sanctions force the price of oil and gas and coal higher. But as Europe is dependent on those exports, it benefits Russia short term with Europe paying record prices for fuels. Enabling Putin to fund his war.

So the most effect sanctions of all, would be not to have any sanctions.

Al said...

Thank you.

One last question - assuming that there is a limit on the volume of gas that can be piped to Europe from UK, and assuming that the amount of LNG that can be landed is a (lot?) larger. Do the forecasts around winter gas prices that are being banded round reflect this? I.e. will the winter price be lower - and if so will it be a significant amount lower?

It would be good to understand what the maximum amount of LNG that can be landed is vs the amount that can be piped to Europe.

Also what the expected Gas price will be outside of Europe will be vs mainland Europe. I.e. how much Gas from Russia supplies the rest of the world, and is this being curtailed?

Apologies for all the questions - and thanks for the informative post.


rwendland said...

Anon> half [French] nukes are closed for safety reasons ... Those nukes being the snappy new 3rd gen design

Actually the French nucs suffering severe stress corrosion are the older ones, not Gen 3 (the EPR, which is still being built at Flamanville 14+ years after build start).

The stress corrosion problem is across the whole operating fleet, but most seriously in what you might call the newer Gen 2+ ones - the French Gen 2 design scaled up beyond 1GW power output, which in the 80s/90s/00s is what the nuclear industry thought was the answer to making nucs more economic. These scaled up nucs have been problematic from the start with their pipework, a stretch too far perhaps.

The French regulator was reported:

it seemed that EDF’s older 900 MW reactors - there are 32 of them in total - were not as affected by the corrosion problems as the others, where the initial design by Westinghouse had been "Frenchified" with the new "geometry of the lines" now seen as a more likely cause of the issue than the welds themselves. This new "geometry of the lines" promotes a phenomenon of thermal stratification of the fluid at the top and bottom of the pipe, which generates stress in the weld zones, he said.

Interesting that the nuclear industry is now recommending the exact opposite to their 80s-00s direction for improving economics, SMRs. Not that the UK Rolls-Royce SMR that our govt is part funding is classically small at 470 MWe, which is bigger than nearly all Magnox reactors were, and only a little smaller than our Gen 2 AGRs at about 600 MWe each reactor. Classic SMRs easily built in factories are in the 50-200 MWe range. The Rolls-Royce SMR claim is a four year build, two years for site preparation and two years in the field construction and commissioning, to my mind not really a SMR other than in the marketing and subsidy-seeking field.

Anonymous said...

rwendland - thanks. So are the gen 3 EPRs, as ordered by UK, still not commissioned?

E-K said...

Hopefully we can beat the crematorium price rises.

Anonymous said...

Flaming fish, they aren't.

"A third reactor at the site, an EPR unit, began construction in 2007 with its commercial introduction scheduled for 2012. As of 2020 the project is more than five times over budget and years behind schedule. Various safety problems have been raised, including weakness in the steel used in the reactor. In April 2015 Areva informed the French nuclear regulator, Autorité de sûreté nucléaire (ASN), that anomalies had been detected in the reactor vessel steel, causing "lower than expected mechanical toughness values""

We've really got a bargain there!

Perhaps we should ask Russia for a few of these


rwendland said...

Yep Anon, the French EPR story is a very sad one. Currently only one of the four pre-Hinkley Point EPR reactors is working. And the French are designing a new version EPR2 which is easier and cheaper to build. They won't build any more of the original EPR1 design in France - unlike the UK whose govt wants more EPR1s for Sizewell C - go figure.

The first one OLKILUOTO-3 in Finland is very nearly ready for commercial operation start, 17 years after construction started. (I think the plan was about 5 years.) But last month foreign material detached from the steam guide plates was found in the turbine steam reheater during trials, and the plant was shut down for about three months of repair work.

The second one FLAMANVILLE-3 in France as you highlight above has had endless build problems and currently is repairing faulty welds in highly inaccessible locations. Currently 15 years after construction started, and it might possibly start commercial operation in 2024/25 at around 17/18 years after construction start.

The two EPR stars are the Chinese built ones, which only took 9 years each to build to first commercial operation in 2018 & 2019. However in 2021 the French manufactured fuel started leaking through its cladding and TAISHAN-1 had to be shut down, and is still shut down I think. However TAISHAN-2 still runs I think, so is the only one running today.

As you say the Russian VVER PWR has had a good reliability record, but has only been mildly scaled up from the Gen2 VVER-1000 to the Gen3 VVER-1200 which seems to work OK. However VVER-1200s have only run a few years so far, and did take about 10 years to build, rather behind the circa 6 year plan. They've also started building the first Gen 3+ VVER-TOI, scaled up again to 1300MWe gross with many small improvements including a fancier control system which they think (pre-Ukraine!) will make it more saleable worldwide.

Anonymous said...

rwendland - thanks. Do you have an energy blog?

I miss the old climate sceptic blogs, many of whose authors have died in the last 20 years. Whose blog/site featured a Pacific Island tide gauge, for which records go back to early c19? Got it.


Similarly I miss Tim Morgan at Tullett Prebon on EROEI - Energy Return On Energy Invested.

Nick Drew said...

Al ...
assuming that there is a limit on the volume of gas that can be piped to Europe from UK, and assuming that the amount of LNG that can be landed is a (lot?) larger.

Yes there is a limit (of course! - they are bits of steel with compressors); and yes our LNG regas capacity is greater (see below). But we need quite a bit of it for ourselves! - particularly in winter. The surplus we muster, in order to be able to export at all, is a summation of LNG imports, pipeline imports from Norway, and our (declining) indigenous production.

Do the forecasts around winter gas prices that are being banded round reflect this? I.e. will the winter price be lower - and if so will it be a significant amount lower?

I have no truck with price forecasts. However, the forward prices right now (i.e. real prices of contracts for forward delivery, not finger-in-the-air guesses at what spot prices will be next winter) are still showing a differential between UK (lower) and continental (higher) prices. The deepest differential I have seen has been EUR 30/MWh, which is astonishing for something that for many years hovered in the range +/- 1 or 2 EUR/MWh. Bear in mind that we are able to max out on exports only in today's summer weather (and the Germans are trying to rebuild stocks for next winter). Come next winter, we won't necessarily be able to export at max, or may even at all.

There's no saying what might happen to the price differential then, with Germany actually stuffed, and no capacity to respond to the desperate price signals they'll be sending. BTW, that's the differential we are talking about. Absolute prices on both sides of the channel might be a LOT higher than today.

Incidentally, as you'd expect, Spain is a bit higher than UK, and France a bit higher still; but both are still clearly cheaper than Netherlands / Germany. This is because Spain is next-best served for LNG, and France after that.

It would be good to understand what the maximum amount of LNG that can be landed is vs the amount that can be piped to Europe.

Well look it up, you lazy b****r! Alright then: UK LNG import terminals are rated at 130 mcm/d. Export pipeline capacity is about 75 mcm/d.

Also what the expected Gas price will be outside of Europe will be vs mainland Europe. I.e. how much Gas from Russia supplies the rest of the world, and is this being curtailed?

On "expected prices", see the above general comment. Right now, European wholesale gas prices are the highest in the world (it's more usually higher in the Far East), causing LNG to come here rather than go to Asia. They are burning coal instead, and/or closing factories. This Is Serious.

I don't understand the last part of your qn.

Al said...

@Nick Drew

My last question was about understanding just how disconnected Europe is from the rest of the world in terms of gas.
I.e. Is Russia turning off the taps to Europe only having a minor impact on the rest of the world (in terms of competition for shipped LNG).
Or is Russia a major supplier outside of Europe (and if so is it also turning the taps of their too).

I'll do some digging!


Nick Drew said...

Good on yer, Al! See what you come up with, but here's a head-start ... (+:

Basically, the whole world of gas is now connected, via LNG as a flexible mediating source PLUS a big move away from LNG contracts that debarred buyers from onselling or diverting cargoes from the contractually-agreed destination port.

Prior to this, LNG moving between the three big 'island' markets (N.America, Europe, Far East) had been marginal at best, & mostly zero, however extreme the price signals. And pipelines are pretty static, even though in dense networks with multiple interconnections (N.America, offshore Norway, some of inland EU) quite a bit of P/L routing flexibility is found; and 'locational swaps' can be done instantaneously as paper exercises

(This advance is, of course, a significant global triumph for Anglo Saxon free-market policies, in the teeth of much opposition from Russia, France, Germany, and the ultra-conservative buyers in the Far East.)

HOWEVER, there are two objective factors that hinder trade (plus a few remaining dumb players who don't respond logically to price signals):

- physical capacity limitations at key bottlenecks of all kinds, which can happen in any physical market, and which tend to be improved over time with investment in new capacity & system upgrades. This isn't always quick, with the best will in the world; and big shocks to the gas-flow system such as imposed by Putin can't always be responded to in just months.

- the length of time it takes to switch a cargo from being headed towards one side of the globe to the other side, can sometimes be measured in weeks, not hours (as would be the case with some energy-system optimisations, e.g. within in the power generation fleet in many cases, albeit that the distances involved wouldn't be as great). It also puts massive pressure on the vessels of the LNG fleet, because it effectively reduces capacity (diverted voyages take longer)

The 'dumb player' problem is eroded over time by Darwinian processes. But some state gas companies are pretty resistant to change ...

... and, more interestingly, the technical and analytic challenges of optimising a global LNG portfolio, replete with complex optionality, are great. Many readers (?) will recognise that the "variable-shipping-capacity-because-of-marginal-decisions-made" problem is indeed technically Rocket Science, requiring Ito's Lemma to solve it. Not everyone is up to the task, Haha! (Exxon, this means you - and one or two others I could name)

Nick Drew said...

In summary .......

As a first-order approximation, global price differentials in gas are indeed arbitraged out these days very effectively; but the bid-offer spread (i.e. the breakeven threshold for making a cargo switch) can be quite wide, and hence reaction times sometimes quite slow
(PS, Russia can't switch very much of its Europe-bound gas anywhere else: its capacity to send it eastwards is minimal. So withholding gas from Europe is a pure loss of supply to the system, at best going into storage for later send-out)

Nick Drew said...

PPS ...

All this extra LNG trade is putting a serious strain on yet another factor - lines of credit! But

(a) many of the players are vast, and not easily thwarted in this regard

(b) clever global financial players are of course swinging in with neat new financing packages, based on the fact that there's ample physical collateral available. (those devious Anglo-Saxons again ...)

Anonymous said...

"big shocks to the gas-flow system such as imposed by Putin"

ND - are you referring to the recent "compressor problems" reduction? Because surely the main shocks are imposed by other actors and come from political decisions like not opening NS2? Isn't Russian gas still flowing to Europe, and not only that, but via Ukraine?

Nick Drew said...

Yes (partly), and Yes.

If, as Gazprom claims, the latest NS1 reduction results from a maintenance problem they are unable to fix because of sanctions, they could (and in the past, would have) readily increase flows using other routes. But given how Putin also mandated flow reductions and emptying of Gazprom's European gas storage inventories all through last year, we may take their protestations with a pinch of Siberian-mined salt

NS2 never opened, so its alternative-universe use as a back-up route is academic

Also, it's worth considering what it means to say that Russia can't maintain its pipelines - one of the more basic pieces of industrial equipment, owned by a nation replete with gas engineers. Quite a thought.

rwendland said...

> Putin also mandated flow reductions ... all through last year

Is that entirely the case ND? This Reuters article says the closure of the Yamal to Europe pipeline at Belarus/Poland border in Dec 2021 was the decision of European gas traders. The Polish traders decided to take gas from German storage (cheaper) than buy Russian spot market gas, thus requiring the Yamal-Europe pipeline to reverse flow Germany to Poland. They had not made contracted volume agreements earlier in the year with GazProm, so needed to top up somehow, and were hoping (hah!) spot market prices would drop thru 2022.

So seems in part the current problem was exasperated, to some degree, by (incorrect) trader expectations and decisions thru 2021.

Maybe the pricing of early-winter drawing down gas in German storage needs to be looked at?


Anonymous said...

Thanks to all for the comments/explanations. I'm not sure if the EU/UK side of things is tragedy or farce - maybe farce at present. Better hope for a mild winter or it could still be tragedy.

I found a diesel receipt from Feb 20 this morning - 149.7 a litre. 50p rise in 4 months. I am going to cut a pile of timber this summer. They've just thinned the nearby woods so there's a lot of waste to cut up.

We had a rehearsal for this a couple of years ago. In winter 2017 I found oil leaking from the underground oil pipe between the tank and the house. Heavy autumn/winter rain meant the pipe junction was underwater, so there was nowt to do but turn it off at the tank and wait for the water to go down. It didn't go down enough to fix until July 2018, during which we had among other things the 'Beast From The East'.


So for that Christmas and spring we basically lived off the woodburner. Used a big shedload of wood, usually 2 years worth, in the process. Our oil CH/DHW had an electric backup but it was something like 15kw, so showers were expensive luxuries. At todays prices ... I'd run the CH for 10 minutes just to stop it all freezing up.

Reminded me of childhood and winter 1963, we all lived in one room. Among the sad effects I think most of the bats in our roof died, it was just too cold upstairs.

Anonymous said...

@anon 17:26

Jeez … Don’t mention the bats you’ll set the covid deniers off.

Nick Drew said...

For a moment there, Anon @ 5:26, I thought you'd written "I found a diesel recipe ...", and that you were going to brew your own!

Gad, I remember 1963. Started snowing on Boxing Day evening as we came out of the panto. Was 4 foot thick the next morning, and stayed until March. Like you said - retreating to just a couple of rooms!

Anonymous said...

Ahh the diesel recipe.

Good ole Rudolf Diesel the inventor of the Diesel engine .
Died 29/11/1913 some say in suspicious circumstances.

Fascinating story.

The prototypes ran on peanut and vegetable oil, then he died.

The rest is history, albeit diesel engines now run on petrochemical.
Ok McDonalds recycle some chip fat. You can do you own research.