UK to withstand Russian gas cutback by boosting LNG imports

By ANNA SHIRYAEVSKAYA
Bloomberg

The UK will be able to withstand a potential cut in Russian natural gas supplies to Europe by boosting liquefied natural gas (LNG) imports, according to National Grid.

In average winter conditions, Britain’s gas demand will be met as normal if Russian gas flows to the European Union are disrupted, the Warwick, England-based network manager said today in its Winter Outlook.

Some Dutch and Norwegian imports may have to be diverted away from the UK to meet increased demand in mainland Europe, according to the grid.

“Under all curtailment scenarios we have sufficient transmission network capacity” if Russian supplies are limited, the report said. “However, it is likely that we could require increased deliveries of LNG.”

Russia, the EU’s biggest single source of gas, halted supplies to Ukraine in June in a debt and price dispute that echoed those of 2006 and 2009, when transit flows to the region were disrupted.

While the UK doesn’t directly receive Russian gas, an escalation of the conflict that impacts supply to the region would affect flows across Europe, the grid said.

Gas use in the six-month period from October will be unchanged from last year on a weather-corrected basis and 1.9% more than actual use. UK consumption will be 47.5 billion cubic meters in the period with average cold day demand of 400 million cubic meters/day and peak cold demand of 499 million, National Grid said.

Gas Stores

Supply on an average cold day, excluding withdrawals from storage, is forecast at 344 million cubic meters/day, with imports from Norway and mainland Europe seen at similar levels as last year, according to the report. Gas storage sites will supply as much as 129 million cubic meters/day, while maximum domestic production is seen 1% lower than last year at 109 million.

LNG capacity is seen at as much as 130 million cubic meters/day. Without a Russian gas disruption, imports are forecast at 50 million cubic meters/day, the report shows. That increases to 120 million in case of a disruption of flows to Europe either via Ukraine or through all Russian export routes. LNG met about 20% of UK’s gas imports last year, according to the UK government.

“In both cases LNG is expected to be the primary source of additional supply which is likely to require significantly higher prices than the current winter forward prices,” the grid said. “This gas would be expected to be diverted from other markets, such as Asia or South America.”

Russian Exports

Gas shipped via Ukraine accounts for about half of Russian total exports to Europe and meets about 15% of the region’s demand. Russia, Ukraine and the EU meet tomorrow for talks to resolve the dispute.

UK gas for delivery in the first quarter rose 0.6% to 57.1 pence/therm ($9.21/MMBtu) at 12.10 p.m. on ICE Futures Europe, 21% lower than a year earlier. That compares with $14.20/MMBtu for LNG to northeast Asia, according to Oct. 20 assessments for cargoes for four to eight weeks by World Gas Intelligence.

If there is a disruption to supplies from Russia or Ukraine, the UK is more likely to see price spikes than curbed flows, Emma Kelso, a partner at the Office of Gas and Electricity Markets, said at the National Grid briefing.

Stress Tests

The UK system will meet all required demand, both domestically and for exports, for either a disruption via Ukraine or from all of Russia at average demand, the grid said. If a colder-than-normal winter coincides with a wide-spread Russian gas halt, a further market response for as much as 90 million cubic meters/day would be needed, the grid said, after conducting joint stress tests with the Department of Energy and Climate Change and Ofgem.

The market could respond by “maximized” imports of LNG, and from pipeline suppliers such as the Netherlands and Norway, according to the report. Demand-side restrictions would also be required, both from industrial and power users and reduced exports to Belgium.

In case of a disruption via Ukraine, Russia is expected to boost supply into northern Europe via the Nord Stream link into Germany under the Baltic Sea and the Yamal pipeline into Poland, limiting the diversion of Dutch and Norwegian imports away from the UK.

In case of a full Russian gas disruption to Europe, Dutch imports to the UK would have to decline as much as 75% to 10 million cubic meters/day, the grid said. Norwegian imports would decline 11% to 98 million cubic meters.

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