UK Energy Security Now and 2030

Sabine Pass LNG Terminal

Energy security is a perennial favourite at Think Defence towers, it is important factor in the overall defence and security of the UK, for example, the reason the Royal Navy has a number of mine countermeasures vessels stationed in Qatar is not because of the nice weather and attractive Sheesha scene but because Qatari gas from the North Pars field is connected to the South Hook LNG terminal in Milford Haven by a conveyor belt like stream of LNG tankers.

Today

I have looked at energy security a number of times, it is important factor in the overall defence and security of the UK, for example, the reason the Royal Navy has a number of mine countermeasures vessels stationed in Qatar is not because of the nice weather and attractive Sheesha scene but because Qatari gas from the North Pars field is connected to the South Hook LNG terminal in Milford Haven by a conveyor belt like stream of LNG tankers.

Click here and here for a review of the older materials

In these posts I wrote about our increasing dependence on LNG as a source of both heat and electricity and that the import and storage would become one of the UK’s major defence and security concerns.

Then came along the shale gas revolution in the United States which means instead of having to compete with the Far East for Qatari gas and dealing with the security implications of the Gulf of Arabia, Bab al Mandab and Suez the UK just might be able to execute a neat one two and switch our prime supplier to Uncle Sam.

In March this year Centrica signed a 20 year deal with Cheniere Energy in Louisiana for 1.75 million tonnes of LNG per year exported from their Sabine Pass gasification and storage complex.

Sabine Pass LNG Terminal
Sabine Pass LNG Terminal

Deliveries are due to commence in 2018 and prices will be based on those traded at the Henry Hub, a pricing point for gas futures.

Gas fracking is producing an abundance of gas in the USA which is reflected in the low prices and availability for export.

The UK strategy for gas has been one of supply side diversity and this is just another element of that strategy but US LNG will become increasingly important.

In stark contrast to the US gas price stability the UK’s gas prices have been quite volatile and susceptible to short term disruption. A recent problem with the Interconnector pipeline between the UK at Bacton and Zeebrugge in Belgium which resulted in an 8 hour outage caused a large price fluctuation, up 50% to £1.50 per therm wholesale.

The reason for this price volatility as a result of what should be seen by all as a short term disruption is because of a number of factors.

Cold weather and continuing demand combined with a woefully small storage capacity mean the UK was at one point down to less than 1.5 day’s supply, another disruption to either a pipeline or one of the inbound LNG tankers may well have seen rationing imposed.

During this period there were three tankers en route from Qatar, these three tankers can supply around 430 million metres of gas (when regassified) which is just over ONE DAY’s demand.

The market worked, supplies were not rationed but price volatility is not good for the economy let alone the prospect of bobble hatted pensioners freezing to death whilst watching Eastenders.

In the coming months and years our moronic EU inspired green legislation will see many of our coal fired power plants being decommissioned which will mean there will be very little contingency and the base load will have to be met from elsewhere.

The high price is attractive to suppliers and a cargo from Trinidad will arrive in the UK in a couple of days, increasingly rare as they get better prices from Asia.

The UK is now paying between 50% and 70% higher prices than the normal long term average at the National Balancing Point.

Because the UK does not in general use long term contracts and, as mentioned above, has a tiny storage capacity these pricing peaks now seem to the norm.

Declining North Sea supplies, a short term contract landscape, lack of storage, cold weather and an increasing reliance on gas as coal is phased out means the UK has probably the worst energy security outlook of any European nation as it has to compete for gas on a market that will usually find better prices in the Far East.

Successive Governments have been delinquent in their approach to energy security and half a dozen minesweepers is going to make the square root of nothings difference to that.

Increasing gas storage should be seen as a strategic security issue in the short and medium term

What About 2030

17 years is a long time to look into a crystal ball but an interesting set of reports from BP tries to do just that.

The reports note that in the period to 2030 the US will become nearly energy independent in contrast to China and India. By 2030 China alone will have a larger gas demand than the whole of the EU put together with this demand being largely met by Australia, Qatar and domestic production.

This means both China and India are going to have to play an increasing role in their own energy security and get a whole lot more engaged in the ‘Middle East’

I don’t think we truly appreciate the magnitude of the strategic shift that US energy (near) independence will mean.

Or, the scale of dependence of the EU as a whole on imported natural gas, this rising to 49% by 2030, despite Norway.

Download presentations, reports and videos from BP here, fascinating stuff.

SDSR 2015

What does all this mean for SDSR 2015 then?

Certainly in the short term the UK’s dependence on Qatari LNG will result in a continuing security presence in the area but in the medium to long term, it is not impossible to envisage a strategic withdrawal from the area as increasing gas imports from the USA mean there is less need to do so.  In recent decades, India and China have benefited from Middle East supply security underwritten by the USA and Western nations, is it impossible to predict the UK relying on them for security of our supplies of Qatari gas?

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