Britain’s dependence on Russian energy is set to grow after Centrica announced a deal to increase significantly the amount of gas it buys from Gazprom to 4.16 billion cubic metres (bcm) a year.
The agreement is the direct result of dwindling North Sea supplies and will see the British Gas owner increase the amount of the gas it imports from the Russian state-controlled giant by 70 per cent.
The UK needs about 70 bcm of gas a year for heating and electricity and the deal means Gazprom will be meeting nearly 5 per cent of the country’s demands.
It comes against a backdrop of rising tensions between Russia and Europe which has left much of the Continent vulnerable to political moves by Russia or international sanctions against the country.
However, because Centrica has struck its agreement with Gazprom’s UK subsidiary, which can source supplies from outside Russia if need be, it is expected to be less vulnerable to problems relating to Russia.
A Centrica spokesman said he was confident that the subsidiary, Gazprom Marketing & Trading, would be able to fulfil its contract: “Russia provides about 30 per cent of Europe’s gas imports of about 440bcm a year,” he said. “Without Russian volumes, Europe’s supply and demand balance would change significantly, impacting the ability of the UK to import materially from continental Europe, or impacting the cost of doing so.”
Centrica, which supplies gas to nine million UK households, also announced a separate, bigger, 10-year agreement with Norway’s Statoil, under which the amount of gas it buys from the company will rise by 2.3bcm a year to 7.3bcm, or 73bcm over the decade.
In total, Centrica has now agreed more than £50bn-worth of gas and electricity contracts for the future with various suppliers.
The decline of North Sea production means that the UK now produces only 43 per cent of the gas it consumes. It relies on European pipelines for a further 44 per cent and liquefied natural gas (LNG) tankers for the remaining 13 per cent, Centrica said.
“These contracts are sensible, and the value and scale of the contracts is indicative of the importance of Centrica’s position as a key, integrated UK energy supplier,” Angelos Anastasiou, an analyst at Whitman Howard, said.
Last month, Centrica’s senior managers warned at the group’s annual general meeting that Europe will remain dependent on Russian gas for years to come, and dismissed suggestions that the EU can replace it with other sources as “unrealistic”.
“You can’t switch that [amount of gas] off easily without huge consequences. There is no way the United States can supply that volume of liquefied natural gas to replace it,” said the group’s chief executive, Iain Conn.
Russia has been a “reliable supplier of gas all the way through the Cold War”, and it needed European demand too, he added.