Daily Management Review

UK will have to increase gas imports after Brexit


The UK is shutting down the largest underground gas storage facility, which could result in a fuel shortage this winter. Most likely, all European storage facilities will no longer be available after Brexit. Now the main gas supplier to the country is Qatar, which is in a political crisis.

Tomek Nacho
Tomek Nacho
The gas market in the UK will be operating without its main stabilizing force - the large Rough gas storage facility under the North Sea. The planned closure of the Centrica Plc storage facility, which is capable of providing 10% of peak demand in winter, means that the United Kingdom is becoming increasingly dependent on the import of liquefied natural gas (LNG), or pipeline fuel from Russia and Norway.

In the medium term, this may lead to the fact that Britain’s volume of purchases will bypass even Japan, the world's largest buyer of LNG.

According to the National Grid, the share of LNG supplies in the winter in the United Kingdom has fallen by more than 50%, to 4% of total gas supplies, in the past two years. According to Deepa Venkateswaran, senior analyst at Sanford C. Bernstein, the UK will have to raise prices to the level of competitors in order to increase the volume of LNG supplies. In 2012-2014, Japan paid more than $ 16 per million for British LNG thermal units, which is higher than the British supply by 60%.

Pumping of gas in the Rough storage has been suspended until May 2018, but most likely it will be closed forever. The political uncertainty associated with the Brexit negotiations, as well as the diplomatic crisis involving Qatar, the largest supplier of LNG to the UK, led to the fact that gas prices in the country have risen to their highest levels since January.

"It takes two weeks to deliver LNG from Qatar. The lack of political stability in the region and the problems in the negotiations with the EU are reducing the UK’s energy security ", said Graham Friedman, chief analyst for the European energy market at Wood Mackenzie. In the winter of 2016, 94% of gas to the UK came from external sources, not from its own storage facilities. More than half of this gas is imported, mainly through pipelines from Norway. Norwegian company Statoil has repeatedly stated that it does not plan to significantly increase exports, but if necessary, it can supply more fuel to the UK.

According to Energy Aspects forecast, LNG imports to the UK in 2018 may increase by 39%, taking into account introduction of new plants and the low probability of reopening the Rough storage. It is important to remember that the arrival of LNG tankers requires much more time than pumping gas from underground storage facilities, which can be dangerous in sudden cold snaps. Earlier in June, two tankers from Qatar were suddenly redirected to a longer route (around Africa), which almost doubled the journey time. Representatives of the supplier, Qatar Petroleum, said that this is common practice and such a change of route is not connected with the company’s problems.

Now, if all imports suddenly stop, Britain will have access to natural gas sufficient to meet the country's needs for 10 days: when the Rough storage facility was operating at full capacity, this period was 24 days. For comparison, Germany and France have access to fuel in storage for more than 100 days, experts say Wood Mackenzie.

According to the National Grid, domestic production in the UK provided nearly 40% of the supply last winter. Since 2000, the country's production has been steadily declining, because the fields on the continental shelf are depleted, which also increases the need for external supplies. In previous years, the UK could rely on Europe's largest gas field, Groningen, located in the Netherlands, but now it has been suspended because of related earthquakes that threaten local residents, Bloomberg notes.

"While we are still entering the EU, others are obliged to share the available stock with us in case of a crisis. But what will happen in the long term, when will we leave the European Union?"- asks Jonathan Stern, chairman of the Natural Gas Research Program at the Oxford Institute for Energy Studies.

Thus, to buy LNG UK still have to - and hope that there will be no sudden cold weather.

According to Macquarie analyst Dominique Nash, there is still a small possibility that the government will support the decision to use part of the Rough storage facility to improve the safety of fuel supplies to households. In 2014 and 2015, 10% of the gas consumed in storage fell on winter, while Rough's share in these supplies was about 70%.

source: bloomberg.com