How UK uses its special relationship with the US to boost gas supplies

Washington was already supplying gas, yet Sunak hailed it as a breakthrough,

It is, according to Rishi Sunak, the deal that will help end Europe’s dependence on Russian energy “once and for all”. Inked in Bali last month, the US has agreed to export up to 10 billion cubic metres of liquefied natural gas (LNG) to the UK over the next year, double what it sent in 2021

“Together the UK and US will ensure the global price of energy and the security of our national supply can never again be manipulated by the whims of a failing regime,” the Prime Minister declared.

With the UK needing continuous imports of gas to make up for its own declining domestic supplies, there is clear logic to the agreement.

Only 40pc of our gas came from the UK North Sea in 2021, with the rest supplied from Norway, pipelines to Europe, and a growing amount in shipments of LNG from around the world. These shipments of LNG accounted for 17pc of the UK’S gas supplies in 2021, providing an important source of flexibility for the country, which has little gas storage.

Russia was the third biggest supplier of LNG to the UK (21pc) in 2021, after Qatar (39pc) and the US (26pc), but the UK wants to stop buying Russian gas in retaliation over the war on Ukraine. Even without that gap to fill, the UK is keen to strengthen its ties with friendly gas exporters, after a year of surging prices due to cuts in Russian exports shocked ministers out of complacency over energy security.

The gas being sent from the US to the UK is likely to be not just for the UK, but for Europe as well. The agreement refers to exports “via UK terminals”, rather than to the UK itself.

Over the past year, the UK has been acting as a “gas bridge” to Europe, importing LNG from around the world, turning it back into gaseous form at its three import terminals, and piping it over to Europe.

Traders have sent a record amount of gas from the UK to Europe this year in this way, and the US and the UK clearly see this continuing.

The 9-10bn cubic metres of LNG set to be exported from the US to the UK next year will “be good for both UK and European partners as we look to replenish gas storage next year”, the agreement says.

The deal, however, isn’t as groundbreaking as Sunak has made it seem.

The energy industry in the US and UK is privatised, meaning gas is sold according to commercial arrangements between gas sellers and buyers.

The US-UK political deal does not interfere with that free market, saying only that both governments will “proactively identify and resolve any issues faced by exporters and importers”.

The US has already been sending exceptional exports of gas to the UK this year: 11.3 billion cubic metres, according to market experts ICIS, which is more than the planned level next year under the new deal.

This is due to high prices in the UK which make it an attractive buyer of US LNG. High prices will still be needed next year in order to attract US LNG against competition from other buyers, such as those in Asia. Tom Marzec-manser, head of gas analytics at ICIS, says: “The deal seems best understood as the governments encouraging the industry to keep up a similar pattern of flows in 2023 as has already been seen in 2022.” Indeed, from the point of view of a gas trader it means “very little,” he adds.

The new partnership contains other plans to collaborate on energy areas, such as nuclear power, which may yet turn out to be more significant than gas.

Last week, the UK reached a deal for China to quit involvement in the planned Sizewell C nuclear power project, which the US is believed to have objected to.

In energy, politics is never behind.