UK gas security safe from Russian reprisals
Russia is in a weak position to directly hinder UK gas supply in response to diplomatic disputes. Brexit creates more risk for future energy security
The fall-out from the nerve agent attack on an ex-Russian spy and his daughter in the UK, for which the Kremlin has been blamed by governments in UK and other countries, has inevitably triggered concerns over the impact of any disruption to Russian gas imports on UK energy security.
The March assassination attempt in Salisbury on Sergei Skripal and his daughter Yulia, who both remain critically ill in hospital, has led to a round of expulsions of Russian diplomats by governments around the world, led by the UK. Given Russia's clout in international energy markets, speculation has mounted over the potential for Moscow to respond by restricting international energy flows.
That scope seems to be limited for the UK, given that direct Russian gas imports have thus far been restricted to half a dozen or so cargoes from the Yamal LNG plant, which began operations in 2017.
"These fears of over-dependence on Russia are misplaced", Jack Sharples, a research fellow said in a paper just published by the Oxford Institute for Energy Studies (OIES).
In response to the voicing of such fears in the UK parliament, Prime Minister Theresa May said London would assess its import strategy and look at other already significant LNG producers. Countries such as Qatar, which accounted for 85-98% of UK LNG imports since 2011, according to OIES.
Domestic storage shortfall
An increasingly liquid global LNG market, with adequate supply not only from Qatar but also from the US and further afield in Asia, could provide a short-term fix for any issues with Russia. The UK imports around half of its gas supply, and Norway, a reliable partner, supplies around three-quarters of these imports, totalling 47.7bn cubic metres, largely via pipeline.
Source: UK government statistics
But that doesn't mean the UK energy market doesn't face challenges from a number of other factors, in which Russia may play some role.
The OIES paper UK dependence on imported hydrocarbons: how important is Russia? notes that one of the greatest risks is the lack of domestic gas storage capacity, now Centrica's Rough storage facility under the North Sea is being closed.
That means the UK is more dependent on spot LNG cargoes and extra pipeline gas purchases from Europe via two interconnectors from Belgium and the Netherlands—which includes Russian gas in the mix, of course—to fill the gap during unforeseen spikes in demand. This also leaves the country more vulnerable to spikes in the UK National Balancing Point (NBP) prices, such as that which accompanied cold weather in early March.
"If the NBP price spikes had not attracted LNG deliveries to replenish storage tanks at the UK's LNG terminals, and the period of both cold weather and consequent increased UK gas demand had continued, the UK could have faced a more severe gas shortage," the paper said.
As the UK becomes more dependent on gas imports, given dwindling gas supply from its parts of the North Sea, so NBP pricing has moved closer to that in north-west Europe. That means any interruption in gas flows to continental Europe would also affect UK gas prices.
So, if European support for the UK over the nerve agent attack—manifest in the round of diplomatic expulsions that took place in March—or, indeed, anything else leads to restrictions on Gazprom's gas supply to European markets, then the UK would also probably feel the impact.
Despite this, the idea that Gazprom or even its European gas marketing arm could directly affect UK gas supply seems remote—there are plenty of other places to buy gas in Europe.
But Brexit could increase gas supply risks faced by the UK, should the UK's departure from the EU mean it is no longer be part of gas-sharing mechanisms in place to deal with regional gas shortages. If the UK becomes a competitor to the EU for LNG cargoes or pipeline gas, then securing supplies in an emergency would become that much harder.
"The greatest challenge to UK security of gas supplies in the medium-term future (to 2022) is not posed by UK dependence on Russian gas imports," the report concludes. "Rather, it stems from the UK's increasing exposure to price volatility on the European gas market, in the context of the UK's increasing import dependence and loss of large-scale gas storage, which has left the UK increasingly reliant on a combination of limited-volume, multi-cycle gas storage and 'balancing' supplies in the form of spot-market LNG purchases and supplies from the continental European market, delivered via one of the two interconnectors."