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What does Ukraine situation mean for UK gas industry in long-term?


It appears that before the current crisis in Ukraine has even made the leap to reality, European regulators and power companies are taking pre-emptive measures to ensure that they are guarded against a proverbial blockage in the gas pipeline.

A call for sanctions on Russian energy groups, including the state gas monopoly Gazprom, as well as mining companies and large Russian banks has been made by two key US senators. If this is put in place, gas deliveries to the EU would be frozen and it seems that EU energy firms are already putting their contingency plan into place with a recent spike in gas flows from Britain to Europe.

In the last three weeks alone, the flow of gas via the UK’s Interconnector pipeline has jumped to reach nearly 10bn cubic metres (bcm).

In addition, despite the high cost, total inventories of liquefied natural gas (LNG) in Europe have also leapt by 20% since late March. Fresh deliveries of LNG have recently arrived at the UK’s South Hook terminal in Wales from Qatar.

So what does all this mean for the UK gas industry?

With the EU set to deliver a draft blueprint that will focus on reducing dependence on Russian energy at the end of May, and UK already playing a central role in stemming the potential energy shortfall, the UK could have a central role to play in Europe’s future energy landscape.

However, with a report by Deloitte forecasting that the UK’s position as a net importer of gas is only set to solidify – 80% of all gas in the UK is set to be imported by 2016 – it seems that the immediate solution lies with Japan.

34bcm in global supply could be freed up as a result of reactor start-ups in Japan, which could facilitate the re-routing of supplies to Europe.

“This could have a huge effect. Japan is the world’s largest importer of LNG,” said Prof Alan Riley, from City University.

It seems then that while the UK will continue to be an importer of gas, it may continue to act as a key energy connecting point between the rest of the world and Europe.

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