Ships carry huge quantities of liquefied natural gas (LNG) and wait for the optimal time to dock. Amid unprecedented turmoil in natural gas markets, energy traders hope the more than 30 tankers – carrying a total of $2bn (£1.7bn) of LNG according to shipping analytics firm Vortexa – can be unloaded when the high prices of recent months. Meanwhile, Rishi Sunak is reportedly close to signing a deal with the US to import more natural gas, largely extracted through fracking from its shale reserves. Here, we analyze the situation.
What happens?
Sunak is poised to announce a major US-UK gas deal as part of an “energy security partnership” following the COP27 climate summit in Egypt. Russian President Vladimir Putin’s weaponization of natural gas since the invasion of Ukraine has raised concerns about gas supplies to Europe this winter. Britain could suffer high prices and knock-on effects if Russian gas is cut off completely, and National Grid has warned of three-hour rolling blackouts in extreme conditions. UK LNG imports over the last 12 months
How important is a gas deal with the US?
The Daily Telegraph, which first reported the gas deal, said the UK hopes to offload around 10 billion cubic meters (bcm), although the timing of when imports will start flowing and whether help this winter remains unclear. That would represent a coup for the government since it praised a deal between British owner Gas 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, senior analyst at the Energy and Climate Intelligence Unit, says improving home energy efficiency and insulation should be prioritized over a US gas deal “break” that represents a “sticky plaster solution”.
How much gas do we get from the US?
Data from ship tracker ICIS LNG Edge shows that before Russia’s invasion of Ukraine sent energy markets into turmoil, the UK imported 3.9 billion cubic meters of US LNG in 2021, 26% of its total LNG imports United Kingdom. However, in the 12 months to October 2022, the UK imported 9.7 billion cubic meters of US LNG, 42% of total imports. Alex Froley, LNG analyst at ICIS, says: “The key question is whether the deal covers any additional gas. The UK has already taken 10 billion cubic meters of US LNG in the last 12 months, so if it’s just a target for next year, it’s in line with what we’ve already seen in the market.”
Why make this deal?
The figures highlight the role the UK has played in Europe’s gas push, immediately exporting imports to the continent via interconnecting pipes. Despite Britain’s relative strength in importing LNG, notably shale gas from the US and imports from Qatar, the UK has little natural gas storage even with the restart of Centrica’s Rough site. This means that a regular flow of LNG tankers into the UK is important to ensure security of supply. Energy consultancy Auxilione said on Tuesday that 16 LNG ships are due to arrive in the UK in the next two weeks. Such is the concern about energy supplies this winter that the UK has signed deals with owners of coal-fired power stations to keep them on standby and the National Grid is paying businesses and consumers to shift energy use away from peak hours to prevent strain on the grid. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply.
What 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 their storage facilities eased high prices. The price of natural gas for next day delivery has almost halved to 95 pa therm from 170p a month ago. The price for next month is 279p, up from 352p at the end of September. The drop in prices is welcome news for the Treasury, which subsidizes energy costs through its energy price guarantee policy. But energy industry experts worry that the more positive picture could make countries complacent about the situation next year, when European countries are unlikely to fill their storage facilities with the same amounts of Russian gas, thereby increasing competition for supplies and keeping prices high.
Will natural gas companies face a widespread tax windfall?
The chancellor, Jeremy Hunt, is said to be ready to extend the windfall tax on North Sea oil and gas businesses 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 encouraged MPs to boost the tax. An announcement could be made at the autumn statement on November 17.
