U.K. Gas Use Set for First August Gain Since ’10 on Nuclear Cuts

Aug 27, 2014 8:10 am ET

Aug. 27 (Bloomberg) -- U.K. natural gas consumption is poised to rise in August for the first time in four years as nuclear plant outages and lower prices boost demand for electricity generation.

Demand for gas used in factories, homes, power stations as well as exports, rose 16 percent in the first 25 days of the month compared with the same period a year ago, according to National Grid Plc. An annual increase would be the first for August since a 20 percent jump in 2010. Usage slid 18 percent last year, data from Britain’s grid operator showed.

Front-month gas futures in the U.K., Europe’s biggest market, fell 39 percent on the ICE Futures Europe exchange in London this year as Europe’s mildest winter since 2007 left British storage facilities 94 percent full. Electricity output at Electricite de France SA’s eight U.K. nuclear power stations will decline by about 5 percent this year as four reactors are halted for inspection through October.

“Year-on-year growth could be witnessed in the U.K. for the first time since 2010,” Thierry Bros, an analyst at Societe Generale SA in Paris, said yesterday by e-mail. “This is linked to cheaper gas prices and nuclear outages.”

U.K. gas demand totaled about 3.99 billion cubic meters from Aug. 1-25 compared with 3.44 billion cubic meters in the same period a year earlier, grid data showed.

Britain consumed 4.32 billion cubic meters in August 2013. Surpassing that level this month would require usage of about 55 million cubic meters a day, about a third of the 164 million cubic meters of demand forecast for today. Consumption was 5.26 billion cubic meters in August 2012.

Gas Power

The amount of electricity produced using gas rose to as high as 18 gigawatts on Aug. 14, the most since July 17. That’s 29 percent higher than August 2013’s peak, according National Grid. A third of Britain’s nuclear power stations were off today, while more than half of the coal-fired units were closed, grid data showed. One gigawatt is enough to power about two million European homes.

“The main reason would be higher demand from the power sector given the combination of the low prices and the carbon price floor,” Trevor Sikorski, head of natural gas, coal and carbon at consultant Energy Aspects Ltd. in London, said by e- mail yesterday. The carbon price floor is a U.K. levy on fossil fuels which discourages coal burning.

EDF halted four U.K. reactors this month after a defect was found in a boiler at one of the units. The Paris-based company now expects to produce about 61 terawatt-hours of power from its reactors this year instead of a July estimate of 63.9 terawatt- hours, it said in a statement.

Energy Mix

The U.K. got about 36 percent of its power from coal-fed plants in 2013, down from 39 percent the year before, while gas generation was 27 percent and nuclear made up 20 percent, according to the U.K. Department for Energy and Climate Change.

Fuel for delivery in the six months starting in October commands a 38 percent premium to next-month gas on ICE. The winter contract has climbed 7 percent from July’s low as a gas price dispute between Russia and Ukraine threatens to cut supplies to Europe, echoing disruptions in 2006 and 2009.

Switching from coal to gas for U.K. power generation will wane into winter amid the potential for higher prices due to cold weather and the threat of Russian supply disruptions, Graham Schorfield, head of power analysis at Eclipse Energy, a unit of McGraw Hill Financial’s Platts, said Aug. 21.

“With gas prices on the rise and hopefully nuclear back on-line, I think the share of gas for power generation is not going to increase substantially,” Societe Generale’s Bros said. “On a European level, we do not expect gas for power generation to grow over the 20 percent share witnessed in 2013.”

--With assistance from Rachel Morison in London.