LONDON — It only took a few days of marginally unseasonable weather and some technical problems with the interconnector that pipes gas from the Continent to bring Britain close to energy rationing last month.

Gas stores were down to just two days supply and an LNG (liquefied natural gas) tanker was diverted here to avert the kind of rationing seen in third world countries.

It highlighted the U.K.’s poor gas storage facilities. But it should put some impetus behind the government‘s new “Gas Generation Strategy“.

Higher prices, more investment
It could be good news for investors, if not consumers. Higher gas prices and more investment into the sector should benefit both Centrica  and BG .

Though best known for its downstream British Gas business, Centrica is the largest investor in the Cygnus gas field in the North Sea, which is due to come on-stream in 2015.

Centrica claims that its involvement in upstream activities just hedges its downstream exposure to gas prices, but most observers would reckon high gas prices are good for the company.

Storage and generation
Centrica also has substantial gas storage and gas-powered electricity generation capacity, though it’s been closing down generating plant as its ageing fleet falls foul of the government‘s green agenda.

That’s where the Gas Generation Strategy comes in. It will “consider whether there is a case for measures to encourage gas storage”. Last month’s near-miss seals that question. The strategy should ensure that there are “opportunities for investors in gas generation plant”. That should help Centrica build new more efficient plants.

What might put some action into these words is the recent appointment of Michael Fallon as Energy Minister, while retaining a dual brief as Business Minster. He is expected to put more emphasis on securing low-cost energy supplies.

Coals to Newcastle
The diversion of the tanker Zarga to Milford Haven last month illustrates the global economics of LNG. Carrying enough gas from Qatar to provide six hours’ U.K. consumption, the tanker goes wherever the price is highest. The U.K. is building more LNG import terminals — and both Centrica and BG are cashing in on the global LNG market.

BG was one of the first companies to sign a long-term LNG supply deal in the U.S., where the shale gas glut has seen LNG import terminals reconfigured as export terminals. Centrica has just signed a 20-year deal with the same exporter.

BG‘s LNG business, a third of revenues, adds stability to the big bet it’s placing on its Brazilian offshore projects. It has just signed a 20-year contract to supply India with up to $20bn-worth of gas.

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Source: FULL ARTICLE at DailyFinance