Not in thrall to Gazprom (yet)

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March 26, 2016 by AK

A follow-up to Thursday’s post on Gazprom and the UK. Reuters sounded alarmist when it reported in 2015:

Russia provides around 30 percent of the EU’s gas and a single supply deal signed last year by Britain’s biggest energy supplier Centrica meant that at the time Russia’s Gazprom would meet 9 percent of the country’s gas needs.

One gets the impression that Gazprom was meeting less than 9% of UK gas needs at that moment. Not really. “Needs” can mean consumption (demand) or imports (import demand) but the 9% number is too low in any case. Gazprom supplied 10 bcm in 2014 and 11 bcm in 2015, which made up 14% and 15% of UK gas demand and 25% of gross UK gas imports in both years. (The UK also exports gas to Ireland.)

As I’ve said, 15% of consumption is not an awful lot compared with the EU as a whole. The Gazprom-Centrica deal was not an act of capitulation either.

Centrica’s 2015 contract with Gazprom was an extension and expansion of the 2012 three-year deal, raising the average annual volume from 0.8 bcm to 4.16 bcm, by 3.4 bcm. (The 2012 contract was a score for Centrica because Gazprom agreed to price the volumes to the NBP, with zero oil linkage.) Considering that by the time the second deal was signed, Gazprom was already selling gas to UK importers at a rate of 10-11 bcm per annum, it’s unclear whether the 3.4 bcm was supposed to be a net addition to that amount or simply a shift from ad hoc purchases to a long-term contract with a guaranteed volume range.

Even if a net addition, the gas would almost certainly not come from Russia – on account of the transportation cost – but would be delivered by Norway’s Statoil or the Netherlands’ Gasunie, while Gazprom would pump the same amount to their clients somewhere on the continent, probably in Germany.

This said, the UK will still have to choose between Gazprom and LNG in the future. To be continued.


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