Emergency Russian Gas Purchases Are Now a Huge Embarrassment for London

UK will now try to stop Russian gas purchases but probably can't

The UK-Russian relations have quickly deteriorated over the past week after the UK said that a former double agent and his daughter were poisoned in England by a military-grade nerve agent of a type developed by Russia.

The spy poisoning scandal turned into a diplomatic row and now threatens to spill into energy issues, after UK Prime Minister Theresa May said that Britain was looking “to other countries” for its gas supplies.

The UK has gas supply contracts with Russia’s gas giant Gazprom, and although the British dependence on Russian gas supply is not as high as that of other European countries, the UK still relies on some Russian gas for its energy needs. The UK has also imported a liquefied natural gas (LNG) cargo from Russia’s newly started Yamal project, and re-exported another LNG cargo originating from Yamal.

For now, UK gas traders remain unconcerned that the UK could run short of nat gas supplies, even shrugging off Prime Minister May’s comments that the UK would be looking for other gas suppliers. 

During question time in Parliament on Wednesday, May said that “I can reassure … that in looking at our gas supplies we are indeed looking to other countries.”

May was replying to a question by Conservative lawmaker Stephen Crabb who said that “One way Russia seeks to extend its influence in Europe is by building relationships of energy dependence. Is she [Mrs May] aware that Britain has recently started to receive shipments of liquefied natural gas, and does she agree that Britain should not provide a market for Russian gas? If we need to bring in extra LNG imports, we have allies such as Qatar, Malaysia and Australia who are more than willing to sell it to us.”

Yet, the UK may find it difficult to cut off entirely gas supplies from Russia. Energy provider Centrica has a long-term supply agreement with Gazprom Marketing & Trading Limited, a UK-registered subsidiary of Gazprom. In LNG, cargoes that are uncommitted to a destination tend to go where prices and demand are highest, and the UK imported this winter’s cargoes from companies that had initially bought the LNG from Russia’s Yamal.

“Until we see gas switched off, I think nothing much is going to happen,” one UK trader told Platts on Wednesday, while another said that the prime minister’s comments were “very vague” and there was “nothing she could do in reality.”

As of December 2017, the UK was producing enough gas from the North Sea and the East Irish Sea to meet 43 percent of its gas demand. Another 44 percent of the gas the UK used came via pipelines from Europe and Norway, and the remaining 13 percent came into the UK via LNG tankers.

“We estimate less than 1 percent of our gas comes from Russia and are in no way reliant on it,” Bloomberg quoted the UK Department of Business, Energy and Industrial Strategy as saying.

The spy poisoning scandal prompted UK energy union GMB to call for more investments in UK domestic gas production because “We cannot now, or in future, be reliant on Russia to heat our homes and keep the economy ticking.”

“We need a serious strategy and investment in UK energy to make sure we can stand on our own two feet. We cannot and should not be beholden to foreign powers who could turn the tap off, having a huge impact on people, communities, businesses and the whole economy,” the union said in a statement on Wednesday.

GMB also questions how effective possible new sanctions on Russia will be “when half of our liquid gas imports this year have come from Russia and Russian companies provided six per cent of our gas consumption in 2017.

Prime Minister May has said that the cabinet would be possibly looking to strengthen sanctions against Russia. According to BBC’s business editor Simon Jack, however, hitting out at Russian businesses in the UK could be pushing against many lucrative businesses in the UK, as well as valuable assets held by UK firms, such as the 20-percent stake of oil supermajor BP in Russian oil firm Rosneft.

UK-Russia relations are now in a deep freeze after 23 Russian diplomats were expelled from the UK and after the UK took additional steps to suspend all planned high-level contacts with Russia. But freezing temperatures, like the ones from the beginning of this month, could leave the UK with little choice but to continue to import Russian gas, even though it is surely not as dependent on Gazprom supplies as most of Central and Eastern Europe is.

Source: OilPrice.com