Energy and Utility Management Consultants

Norwegian-UK relations solidified, Gazprom look to increase portfolio

June 2012


Good news arrived late last week in the form of an agreement between the UK and Norway which paves the way for the continued fruitful relationship and an eventual increase in British imports of Norwegian natural gas and oil – a major factor in the UK energy generation mix. The agreement will also lead to increased investment in renewable energy, with tens of billions of pounds being made available for new incentives such as the North Sea’s £30bn Dogger Bank wind farm; which will be the largest in the world, is not due to begin construction until at least 2014, and will be able to provide 10% of the UK’s power needs.


In light of the huge increase in LNG (liquefied natural gas) imports required by Japan since the Fukushima Daiichi nuclear disaster which resulted in the country re-evaluating its nuclear stance – currently all 54 of their reactors are offline - Japan Gas Association chairman Mitsunori Torihara has called for an overhaul in the Japanese pricing structure of LNG (currently linked to the oil markets). With a ten-fold increase in imports expected from 2010 – 2013, this way of buying LNG is more evident in Japan than anywhere else in the world as they look to fill the void left by the nuclear shutdown (impounded by the delay to the restart of the Oi reactor). The main use for LNG has changed drastically recently - moving away from almost exclusively being used for heating - and is now used almost entirely for power generation purposes.


It has been commented that the LNG market price in Japan could be linked to either the Henry Hub or NBP pricing points, much like the majority of the world’s importers. It is suggested that the price for LNG should be more closely related to nuclear and coal prices, which are largely used for the same purposes as LNG is now – and, not coincidentally, are lower too!  Certainly food for thought, and if these very sensible comments are to be taken seriously, a Japanese market structure overhaul could have global repercussions on the costs of LNG. Iranian opinions and actions are in the news again this week as they claim that the recent drop in oil prices (from a high of over $125/barrel in March to its current sub $100/barrel mark) is largely down to fellow oil producing countries – most notably Saudi Arabia, Kuwait and the United Arab Emirates - having high levels of output, and are urging them to produce less oil in order to shore up prices. It must be noted that Iranian exports are subject to UN sanctions and so have drastically fallen in recent months.


The lowered demand in Europe amid the Eurozone crisis has undoubtedly helped lower prices. Opec typically have a cap of 30m barrels of oil being produced per day, a figure which has been exceeded of late despite the drop in demand, but many Opec members have expressed a desire to see oil prices remain around the $100/barrel in order to stimulate global economic growth, and so increased output is necessary – a very sensible long term view. Meanwhile, a second round of talks between the UN and Iran related to its nuclear programme is scheduled – any revelations will be reported in due course. Gazprom, the world’s largest gas business, is believed to be in the running to purchaseSuttonBridge, an 819MW gas-fired station in south-eastLincolnshire, which is to be sold by EDF Energy.


The purchase would add to Gazprom’s generation portfolio, could significantly increase their market share of UK natural gas business and would see them edging ever closer to the top of the Big Six natural gas suppliers (currently headed up by Total Gas & Power). The inevitable increased competition can only be a good thing for end-users. If you aren’t already benefitting from our full Utility Bureau Service (UBS) – which includes completely impartial and professional energy procurement and utility consultancy, and invaluable advice on energy management – there couldn’t be a better time to get in touch to see how we could benefit your business.





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