Monday, June 24, 2024
Monday, June 24, 2024
Home » Why does UK want a gas deal with US and how important is it?

Why does UK want a gas deal with US and how important is it?

by Theo Atkinson
0 comment 112 views

Rishi Sunak reportedly poised to announce deal as Russian invasion of Ukraine threatens gas supplies

Ramblers taking a stroll along the coastline of north-west Europe and the Iberian peninsula are met with a strange sight: huge tankers floating just offshore.

The ships are carrying vast quantities of liquified natural gas (LNG), and are awaiting the optimum time to dock. Amid the unprecedented tumult in the gas markets, energy traders hope the more than 30 tankers – carrying a combined $2bn (£1.7bn) of LNG according to the shipping analytics firm Vortexa – can unload when the high prices of recent months return. Meanwhile, Rishi Sunak is reportedly close to signing a deal with the US to import more gas, largely extracted via fracking from its shale reserves. Here, we analyse the situation.

What is happening?

Sunak is poised to announce a major gas deal between the US and the UK in an “energy security partnership” after the COP27 climate summit in Egypt. The Russian president Vladimir Putin’s weaponisation of gas since the invasion of Ukraine has triggered concerns over gas supplies into Europe this winter. Britain could suffer from high prices and knock-on effects if Russian gas is shut off completely, and National Grid has warned of three-hour rolling blackouts in extreme circumstances.

How important is a US gas deal?

The Daily Telegraph, which first reported on the gas deal, said the UK hopes to land about 10bn cubic metres (bcm) although the timeframe of when imports begin to flow and whether it will help this winter remains unclear. That would represent a coup for the government given that it lauded a deal between the British Gas owner Centrica and Norway’s Equinor that guaranteed just a tenth of that over the next three years in June. However, it is unclear which companies the deal would be between. Jess Ralston, a senior analyst at the Energy and Climate Intelligence Unit, says improving home energy efficiency and insulation should be prioritised over a “stopgap” US gas deal that represents a “sticking plaster solution”.

How much gas do we get from the US?

Data from ship-tracking service ICIS LNG Edge shows that before Russia’s invasion of Ukraine caused turmoil in energy markets, the UK imported 3.9bcm of LNG from the US in 2021, 26% of the UK’s total LNG imports.

However, over the 12 months to October 2022, the UK imported 9.7bcm of American LNG, 42% of total imports. Alex Froley, an ICIS LNG analyst, says: “The key question is whether the deal covers any additional gas. The UK already took 10bcm of US LNG over the past 12 months, so if it’s just a target for the next year, it’s in line with what we’ve already seen in the market.”

Why do this deal?

The figures underscore the role the UK has played in Europe’s dash for gas, immediately exporting imports to the continent via interconnector pipes. Despite Britain’s relative strength in importing LNG, notably shale gas from the US and imports from Qatar, the UK has little gas storage even with the reopening of Centrica’s Rough site.

This means the regular flow of LNG tankers into the UK is important to ensuring security of supply. The energy consultancy Auxilione said on Tuesday that 16 LNG vessels are due to arrive in the UK in the next two weeks. Such is the concern over energy supplies this winter that the UK signed deals with the owners of coal-fired power stations to keep them on standby and National Grid is paying businesses and consumers to shift their energy use away from peak times to prevent strain on the grid.

What has happened to gas prices?

The price of natural gas has fallen sharply in recent weeks as a mild start to winter and signs of success in European countries’ efforts to fill up their storage facilities have softened high prices. The price of gas for next-day delivery has almost halved to 95p a therm from 170p a month ago. The month-ahead price is 279p, down from 352p at the end of September. The price fall is welcome news for the Treasury, which is subsidising energy costs through the energy price guarantee policy.

However, energy industry insiders are fretting that the more positive picture could make countries complacent about the situation next year, when European countries are unlikely to be able to fill up their storage facilities readily with the same quantities of Russian gas, thus increasing competition for supplies and keeping prices high.

Will gas companies face an extended windfall tax?

The chancellor, Jeremy Hunt, is reportedly ready to extend the windfall tax on North Sea oil and gas operators announced by Sunak earlier this year. The huge profits reported by BP and Shell and Hunt’s mission to shore up the public finances appear to have emboldened MPs to toughen the tax. An announcement could come in the autumn statement on 17 November.

Source: The Guardian

You may also like

Yew Media is a global leader in the online news. We seek to inform and engage with our readers. Staffed 24 hours, seven days a week by a dedicated team around the globe, we deliver news from journalists around the world. We are contrarian truth-seekers and truthtellers. We are journalists united by a mission to inform and engage with our readers. We bear witness to history as it unfolds and explain not just what happened, why it happened and what it means to our readers and the public. We are contrarian, we are committed to the news, speaking truth to power.

Yew Media, A Media Company – All Right Reserved.