Centrica deal to import US shale gas for UK homes

SHALE gas imported from the United States will be used to heat as many as 1.8 million British homes after Scottish Gas-owner Centrica yesterday unveiled a supply deal worth £10 billion.

The 20-year contract for deliveries from the Sabine Pass liquefaction plant in Louisiana will help to “ensure the UK’s future energy security”, Centrica chief executive Sam Laidlaw said.

However – with gas reserves currently strained by Britain’s prolonged winter – the bad news is the first shipments are not due until September 2018.

The deal with Cheniere Energy Partners for 89 billion cubic feet of liquefied natural gas (LNG) marks the first time that a British company has entered into a formal gas importing agreement with a US firm.

In 2011, Centrica signed a three-year supply deal with 
Qatargas and a new ten-year contract to pipe gas to the UK from Norway from 2015.

Laidlaw said: “This landmark agreement represents a significant step forward in our strategy, enabling Centrica to strengthen its position along the gas value chain and helping to ensure the UK’s future energy security.”

Prime Minister David Cameron added: “I warmly welcome this commercial agreement between Centrica and Cheniere.

“Future gas supplies from the US will help diversify our energy mix and provide consumers with a new long-term, secure and affordable source of fuel.”

News of the deal comes after the price of importing gas to the UK hit an all-time high on Friday after the inter-connector pipe that connect Britain to Belgium was unexpectedly shut down.

A Downing Street spokesman was forced to reassure the public over the weekend that “supplies are not running out”, despite the UK’s largest gas storage facility being only 10 per cent full.

Booming natural gas production from US shale deposits has unlocked a plentiful source of cheap gas that producers want to liquefy for export.

Gas prices in the UK are on average three times higher than in the US, although last week’s British price spikes saw that premium widen dramatically.

High demand for LNG in Asia have seen supplies diverted to Japan and South Korea, depleting stockpiles and sending prices to record highs.

Qatar and other established exporters refuse to commit long-term supply on anything but prices linked to relatively expensive crude oil, while Centrica has sought market prices.

Under the terms of the latest deal, Centrica will retain destination rights for the US cargoes, meaning it could divert them to other markets during times of low UK demand.

Mick Gilligan, head of research at stockbroker Killik & Co, noted: “The group will have the flexibility to sell the gas into the highest-price markets.

“The gas will be purchased on a ‘free on board’ basis, giving Centrica destination rights for the cargoes, for a purchase price indexed to the Henry Hub natural gas price plus a fixed component.”

Chancellor George Osborne’s gas strategy is triggering what environmentalists have termed a “dash for gas”, as Britain looks to build more gas-fired power stations to replace coal-fired plants in an effort to meet its carbon dioxide emission targets and meet demand as older power stations close down.