Centrica signs £2bn gas deal with Qatar

Centrica signed the UK's first long-term liquefied natural gas (LNG) contract with Qatar yesterday, to coincide with a trade mission to the Gulf led by Prime Minister David Cameron.

Under the deal, signed in the Emir's palace in the presence of Mr Cameron and Sheikh Hamad bin Khalifa al-Thani, the British energy giant will import 2.4 million tons of LNG into the Isle of Grain terminal in Kent each year for the next three years.

The contract has a total value of £2bn, using the current gas price, and represents about 10 per cent of the UK gas market, enough to heat 2.5 million homes.

Centrica said the deal is groundbreaking because it is Britain's first ever long-term LNG supply contract. In the past, the company has bought only on a short-term "spot" basis.

It is also vital to efforts to strengthen the UK's energy security as home-grown supplies from the North Sea continental shelf begin to dry up.

"As domestic supplies of gas begin to dwindle, this is an important deal for UK energy security and for our customers," Mark Hanafin, the managing director of Centrica Energy, said. "The important thing is that where we were buying literally month-to-month, now we have secure supplies for three years."

Centrica said that support from the UK Government was an "important factor" in securing the deal, which will be priced according to the UK's wholesale gas market price – the so-called national balancing point (NBP) – rather than linked to the oil price. Although the deal is valued at £2bn at today's prices, the cost may fluctuate as the market price moves.

Mr Hanafin denied suggestions that reliance on the turbulent Middle East region could expose the UK's energy supplies to greater risk, stressing the stability of the regime in Qatar and the company's diversification strategy, including investments in upstream resources in the North Sea, international expansion and move into nuclear and renewable generation.

"We are not taking a risk with UK energy supplies, quite the opposite – this is building up our energy security," Mr Hanafin said. "This is a deal between the largest gas exporter and Europe's largest market."

The UK is already feeling the impact of slowing North Sea oil and gas production. Last year, around half of the UK's gas supplies were imported. But by 2015, imports will rise to two-thirds of UK gas needs, and to four-fifths by 2020. But Centrica is still committed to the region, the company confirmed yesterday. Last year, the group added another 29 million barrels to its reserves with the £144m boost to its stake in the Norwegian Stratfjord field, and in 2009 it spent £1.3bn to buy Venture Production, which specialises in the region.

The company will also continue to evaluate declining "orphan" fields which are no longer economic for the oil majors. "We are looking at every orphan field to make sure we are getting every last drop out of them," Mr Hanafin said.

Centrica expects controversy today when it publishes annual results showing booming profits at the British Gas retail division while householders struggle with rising costs. The group's defence will stress that the majority of the profits were from the first half of the year, and that it needs an extra-strong balance sheet to make the £40bn-worth of forward contracts that secure the country's gas supplies.