Monday, July 07, 2008

UK "Secondary Priority" for Norwegian Gas Supplies.

The UK has much of the infrastructure in place to receive imported gas from Norway and other nations, but how certain can we be that the gas will come here? Alarmingly, the executive vice-president of the Norwegian pipeline company, Gassco, has stated categorically that: "the UK is a secondary priority. Like it or not, that is a fact." His remarks stressed that long-term contracts with continental European countries were paramount. This is despite building the new Langeled gas-pipeline from a major offshore gas-field to the UK last year. Imports of gas from continental Europe via. the Netherlands and the Belgian connector are down, despite the significantly greater gas-prices in Britain.

The UK has gone to considerable efforts and expense to build gas-infrastructure, both in terms of pipelines and gas-terminals, but this does not of course guarantee the gas will follow. We import 20% of our gas from Norway now and this fraction of our gas supplies was expected to increase ("Hands Across the North Sea: British-Norwegian Gas Connections", posted July 6th, 2007); however this is now in doubt. By 2020, Britain will need to import 80% of its gas; a significant amount (perhaps 30%) is expected from Qatar in the form of Liquefied Natural Gas (LNG), for which two storage terminals, Dragon and South Hook, are being completed at Milford Haven, in south west Wales. There is another LNG terminal at Isle of Grain, at Medway, Kent, but this hasn't received a cargo since January.

Illustrating the buyer-seller aspect of gas-supplies now and in the future, one anticipated shipment of LNG from Algeria was abruptly diverted to Turkey, because the buyer offered more money in consequence to an interruption of existing pipeline-supplies of gas by Iran. Gas-prices are set internationally and have been raised by rising bids from Japan, Korea and China, who are worried over securing gas-supplies. An earthquake in Japan knocked-out some of its nuclear-electricity production, thus forcing the nation to lean harder on gas-fired power.

There seems little doubt that unless energy-utilities in the UK are prepared to stump-up for competitive gas-prices, we may run-short, as precious resources are simply sold-on elsewhere in the global marketplace. Britain must meet the shortfall in urgently declining production from the North Sea, and we will have to pay through the nose for it. Even though British customers are encouraged to change their energy supplier, the overall costs of both gas per se, and electricity, much of which in the UK is made from gas, rise relentlessly.

Prices of oil, and of its siamese-sister gas, will continue to rise according to increasing demand against the limited and competitive availability of resources. Oil production is expected to peak soon and gas within a decade or so, which begins to set limits on the production side of the energy gap that threatens. Among its other deliberations, I hope the G8 will now begin to make using less in the way of fossil fuels, a priority. The world will not run-out of them for a very long time, but we seem to have run-out of the cheap stuff. Some estimates are that fuel prices will be higher by as much as 40% this winter, and that is whether demand can be met or not. We may have power-cuts and still pay for the privilege.

Related Reading.
[1] "Gas flow to Britain slows depsite high prices." By Mark Milner.
[2] "Supply and demand keeps gas pressure building." By Alf Young.


Yorkshireminer said...

I gather from my reading that Gas when it peaks seems to drop off a cliff, well if not exactly a cliff then a very steep decline.
Interesting times indeed.

Professor Chris Rhodes said...

Yes, that's my understanding too! Oil comes out until you have recovered maybe half what you are going to, then you need to squeeze it by some means, but gas comes-out until around 90% is recovered by when the pressure is far less meaning that the rest must be flushed-out. So yes, a real plunge after that "peak".

It's reckoned there are about equal amounts of oil and gas left, but if I were a betting man, I would put my money on gas finishing first, but oil playing-out the longer run, albeit at reduced production levels.