Weekly News Review - 16th June 2023
Britain’s National Grid expects to meet demand this winter
Britain’s National Grid and National Gas Transmission published their early winter outlooks for gas and electricity this week which outlines that they expect to be able to meet demand next winter. Gas storage levels in the UK and Europe ended last winter at record levels despite the significantly reduced gas supply from Russia. A combination of mild weather, demand reduction and increased LNG supply have all helped to maintain healthy storage levels.
National Grid Electricity System Operator (ESO) presented three key messages in their early view of winter. The first states that their current base case margin is 4.8GW or 8% and they expect there to be sufficient operational surplus throughout winter. National Grid ESO will continue to use a range of balancing tools available on days where margins are tight.
The next key message is that National Grid ESO expect to continue working closely with neighbouring European countries. This will involve importing and exporting over the UK’s numerous interconnectors. The final key message is that National Grid ESO are “continuing to build resilience ahead of winter to mitigate the impact of risks and uncertainties due to Russia’s illegal invasion of Ukraine.”
They are currently engaging with industry stakeholders as well as the Government, Ofgem and National Gas Transmission to understand and mitigate emerging risks for the upcoming winter. They have also announced that the Demand Flexibility Service introduced last winter will be continuing and they are in discussions with two coal units about contingency contracts next winter.
National Gas Transmission (NGT) also published their Winter Review and Early Winter Outlook which states that the UK received a record 15.7 bcm of liquefied natural gas (LNG) last winter, up from 11.4 bcm the previous year. This allowed for a record 7.6 bcm of gas to be exported to Europe to mitigate the effect of reduced Russian gas supply. The review also outlined that LDZ demand was 13% lower last winter as a result of the high energy prices.
Shell drops target to cut oil production as CEO aims for higher profits
Oil giant Shell has announced plans to keep investing in oil and gas production over the next few years as chief executive Wael Sawan focuses on increasing profits and improving investor confidence. This replaces the target announced in 2021 by previous CEO Ben van Beurden of a 1-2% annual cut in oil production with the aim of reaching net zero carbon emissions by 2050.
In a meeting with investors in New York on Wednesday, Shell announced that it would be growing its gas production business while oil production would remain stable until 2030. The new plans will see Shell invest $40bn in oil and gas production up to 2035 and $10-15bn in “low carbon” projects such as biofuels, electric vehicle charging and hydrogen.
Shell also announced that shareholder distributions will rise to 30-40% of cash flow from operations, up from a previous target of 20-30%. This will initially involve the dividend rising to $0.33 per share, a 15% increase, although this is still below the $0.47 per share paid each quarter from 2014 to 2019. Mr Sawan said that he wanted to “reward our shareholders today and far into the future”.
He added: “We are investing to provide the secure energy customers need today and for a long time to come, while transforming Shell to win in a low-carbon future. Performance, discipline, and simplification will be our guiding principles as we allocate capital to enhance shareholder distributions, while enabling the energy transition.”
The announcement was met with criticism by climate campaigners. Carla Denyer, the co-leader of the UK Green party, said: “For Shell to target more fossil fuel production and to increase pay-outs to shareholders is pure climate vandalism, and a sign that fossil fuel companies will not steer us to the greener future we all crave without political leadership from national governments.”
However, Shell claim that they have already hit their previous oil reduction target with the $9.5bn sale of its project in the Permian Basin, Texas in 2021. This reduced Shell’s output from 1.9m barrels of oil a day in 2019 to 1.5m barrels a day. A Shell spokesperson said: “Our target of a reduction in oil production by 2030 has not changed. We’ve just met it eight years early.”
National Grid fires up coal plant to meet UK heatwave demand
Temperatures in the UK reached 30°C for the first time this year which caused National Grid to fire up the Ratcliffe-on-Soar coal plant to meet the rise in demand from air conditioning. This broke a 46 day coal-free run and led to criticism from green campaigners. Low wind generation combined with a fault on the 1.4 GW North Sea Link interconnector with Norway and planned maintenance at Torness nuclear power station forced National Grid to turn to coal.
The decision has drawn criticism that low carbon generation or demand reduction were not considered first. Greenpeace UK’s political campaigner, Ami McCarthy, said: “It is a sign of failure that the National Grid is turning to one of the most polluting forms of power generation to deal with a summer heatwave that we know has been made worse because of climate change.”
She added: “The government must get to work and upgrade our energy grid. In summer, we should be turning to solar power, yet we currently have renewable energy going to waste because our grid cannot transmit the power, and hundreds of renewables projects which are on hold because they can’t get connected.”
Alex Schoch, head of flexibility at Octopus Energy, said: “We’ve shown the potential of consumer flexibility – it’s now time to roll this out across the UK and end our reliance on expensive and dirty coal power plants once and for all. Over the winter we saw how our future green grid would work. We’ve proven that households can balance the grid and be part of the movement away from fossil fuels.”
It has also been confirmed this week that National Grid has asked Drax to bring its two coal-fired units out of retirement to provide backup capacity for the coming winter. The electricity system operator spent around £400m last winter keeping Drax, West Burton A and Ratcliffe-on-Soar coal plants on standby, in case margins became tight. However, the two units at Drax were closed in April and it is unlikely they will reopen.
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