Energy – Where does the gas come from to fuel the UK economy

Switching on our lights at home or at work, cooking a meal and being able to enjoy the comforting benefits of central heating are facts of life largely taken for granted on cold winter nights especially as so much of these enjoyable facts are life are powered by gas.

So far in this century there have been two tipping points in the UK’s gas industry. In 2000 gas production from the UK Continental Shelf (UKCS) in the North Sea peaked and has been going through a slow but steady decline ever since. In 2005 the UK flipped from being a net exporter of gas to being a net importer of this valuable and essential energy source. By 2015 the cumulative effect of these two tipping points is represented in the following very short table illustrating where the UK’s gas comes from:

UK Production             45%

Norway                         33%

Rest of Europe               5%

Qatar                             16%

Rest of World                 1%

Total                     100%

As this table shows, in 2015 the UK had to import 55% of its annual gas requirements.

Production of gas from the UKCS will continue to decline as existing reservoirs are depleted. There is still gas in these territorial waters but it is located in what the energy industry term as ‘marginal’ areas where extraction involves high risk caused by working in the challenging conditions of deeper waters and wells. To extract this resource from these areas involves high capital expenditure in technology which has to show an adequate return to justify the investment.

Faced with declining domestic production the UK has no choice but to import increasing volumes of gas to quite literally keep the home fires burning.

As the country has to rely ever more on imports it’s level of energy security will decrease. Perfect energy security would entail complete self-sufficiency in energy sources to meet demand. A sort of energy autarky. Lack of energy security and specifically in gas increases the importing country’s exposure to price fluctuations in a highly globalised market. Lack of energy security also exposes a country to the risks of disruptions in the supply chain for gas caused by geopolitics and natural disasters. Any country heavily reliant on gas imports to fuel their economies does not have any control over either of these two threats to their energy security.

Norway is a politically stable country that has very little exposure to natural disasters and so it represents a secure and stable source of gas for the UK. Its known reserves are enough for the foreseeable future. However, there is one major constriction in the supply of gas from there. All of the gas the UK imports from Norway comes from two undersea pipelines.

The longest one is the ‘Langeled’ pipeline stretching 1,106 kilometres from Nyhama on the Norwegian coast to Easington on the East Yorkshire coast. The diameter of this pipeline is between 1,067 mm and 1,118 mm. It was fully commissioned in 2006 and cost £1.7bn to build.

The shorter pipeline is the ‘Vesterled’ which is just 360 kilometres long and runs from the Heimdal gas field in Norwegian territorial waters to St Fergus on the North-East coast of Scotland. It is 810mm in diameter, was originally commissioned in 1978 and was further extended in 2001.

Earlier in 2017 Qatar, where 16% of the UK’s gas comes from, was at the epicentre of a diplomatic storm with its neighbours in the Middle East. There was a risk that Qatar could have had trade sanctions imposed on it by its own neighbours. That action could have escalated to the point where Qatar would have been unable to export gas to its customers, even those in the UK. This could have caused a serious choke in the supply chain into the UK by sea.

If that had happened for any length of time then the UK could have been in serious energy based trouble. By the very nature and level of usage of the existing pipelines from Norway it would not have been possible to increase supplies from there simply by opening a tap further. One instant effect this dispute did have on shipments was that two tankers destined for the UK had originally planned to travel via the Suez Canal but because that runs through Egypt that was a part of the alliance against Qatar the two tankers were considering rerouting via Southern Africa. An additional risk with gas travelling by sea is that the cargo can change hands several times and can finally be discharged in another country where it can be sold for a higher price than in the UK.

Fortunately, the situation in the Middle East with Qatar did not escalate to that level and gas was supplied continuously. However that geopolitical incident did cause jitters in the commodity markets for gas for a few days as traders temporarily anticipated a shortage in the market.

The National Grid estimates that by 2030, which is less than 13 years away, the UK will have to import 60% of its annual gas requirements. That level of dependency on imports will further decrease the country’s energy security.

Renewables such as wind generated electricity are helping to improve the energy supply balance. For part of one day in June wind farms generated more electricity than power stations but that was only for one part of one day. Throughout the year 42% of the UK’s electricity is generated with gas. So, it is still an essential source of energy especially when the wind does not blow or there is no sunshine to power renewable sources. However, a safe and secure supply of gas is still essential to fuel the UK’s economy to make up any shortfalls from renewable sources when there is little wind or little sunshine.

There are ample supplies of gas around the world but it is the vulnerability of the supply chain over which it cannot exercise any control that endangers the UK’s energy security.