Crucial gas supplies turned away from UK ports

·4-min read
National Grid natural gas shipments UK energy - AP Photo
National Grid natural gas shipments UK energy - AP Photo

Critical shipments of natural gas are being turned away from British ports because National Grid fears it will be overwhelmed by supplies intended to tackle the European energy crisis.

The Grid has cut the amount of liquid natural gas it is accepting at Milford Haven terminals in Wales over fears that it is running out of storage for millions of tonnes of fossil fuel meant to replace Russian deliveries across the Continent.

It dramatically reduced the amount of capacity offered at the port in June at an auction held last Wednesday.

Energy companies expect further reductions at the Milford Haven LNG terminals in the coming months, even as oil and gas-rich countries offer to ramp up supplies.

Iran is considering gas exports to Europe, an oil minister said on Sunday.

The Grid's limits on imports have sparked a backlash from global energy companies including ExxonMobil, RWE and Petronas, which have warned that it risks making the cost-of-living crisis worse by driving up energy prices.

It is also feared that lower supplies will undermine efforts in Whitehall to make Britain an LNG gateway for the whole of Europe.

The Grid has consulted energy companies on the policy of accepting less gas. ExxonMobil policy adviser Chris Wright said: "There is a risk that the reduction in supply to the market could result in upward pressure on [British] wholesale prices which could ultimately feed through to end consumers.

"The very fact that this change proposal has been raised risks significantly undermining efforts to deliver LNG to the UK market, and for onward transmission to wider European markets, at this time when LNG has never been in greater demand."

Terminal operator South Hook Gas said in its consultation response that negotiations over one LNG shipment had ended due to National Grid's changes, and that another shipper was trying to cancel their summer deliveries.

The war in Ukraine has sparked a race for LNG so European countries can reduce their reliance on supplies sold by the Kremlin.

Countries are working together to increase shipments from the likes of Qatar, with Britain a particularly important player because it is able to accept gas at terminals and then pipe this to countries such as Germany, which has no ability to process LNG.

However, National Grid fears the country’s energy network may be unable to handle a high level of deliveries over summer, potentially forcing it to pay compensation to energy companies.

It has said the network will also be restricted by maintenance work required to increase pressure in the pipes so it can pump more gas to Europe.

Sources close to the company said gas deliveries will only be restricted further if the network is overwhelmed.

The Grid indicated the level of restrictions suppliers could expect with an auction held on Wednesday.

Milford Haven can send out up to 950 gigawatt hours of gas a day into Britain's gas networks and energy companies had already pre-purchased 350 gigawatt hours of gas capacity ahead of the auction.

National Grid could have offered 600 gigawatt hours in the auction but only offered 343 gigawatt hours. Shippers only purchased 93 gigawatt hours amid uncertainty over the network's plans.

Gas companies have complained that the Grid is overstating how much it may have to pay out in compensation if the network becomes too full.

Lauren Jauss, of German gas company RWE, said: "We believe that these arrangements are unnecessarily conservative, will deter LNG imports and hence increase wholesale prices and may present an increased risk to security of supply.

"We are surprised that the geopolitical situation in Europe is cited as a reason to reduce baseline capacity. In our view, it is a reason to find ways to maximise possible throughput and attract LNG, not to propose arrangements that achieve the opposite."

Stephen Parle, head of strategy at Malaysian gas company Petronas, said: "The irony of a policy that discourages supply in the current high-priced environment is not easy to ignore."

The Telegraph reported in February that Britain had launched plans to help wean its European neighbours off Russian gas by coordinating LNG deliveries.

ExxonMobil's Mr Wright said: "We note in particular statements made in the recent government British Energy Security Strategy document, which references the importance of international relations and UK infrastructure, including LNG terminals, in meeting UK and wider European gas demand."

In its decision to approve the regime, Ofgem said: "The issues we are dealing with are urgent and need action now to protect the interests of consumers in the event that sustained higher levels of LNG delivery over a prolonged period are experienced over the summer.

"We believe that approving the temporary changes... will ultimately protect consumers from the avoidable costs that they could otherwise face as a result of the increased likelihood of constraints."

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