U.K. Needs Europe More Than Ever to Look After Its Natural Gas

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  • U.K. Needs Europe More Than Ever to Look After Its Natural Gas

The U.K. is becoming more dependent than ever on the European Union to look after its natural gas, even as it negotiates its exit from the bloc.

Britain is expected to ship a record volume of natural gas from the U.K. to Belgium through an interconnecting pipeline Wednesday, capping a year of buoyant flows to the mainland. The rising exports suggest the U.K. is stockpiling gas for the winter in facilities outside its borders after losing its largest storage site, Rough. When the weather turns frigid later this year, it will rely on those on the continent to send the fuel back.

Yet Brexit means the country is severing political and economic ties with those countries. It has left question marks about U.K.-European gas trade, needed to keep the lights on and heaters running in Britain in its coldest months.

The record flows are “both ironic and emblematic of the wishful thinking behind Brexit,” said Pierluigi Frison, a gas trader at Green Network Energy Ltd. in London. “The romantic vision that the U.K. can function better separated from Europe gives way to the unescapable reality of geography.”

The Interconnector pipeline, which can flow in either direction between southern England and Zeebrugge, Belgium, has been operational since 1998. The previous record for flows to Belgium was 59.9 million cubic meters in April 2011. It’s expected to send 60.2 million cubic meters Wednesday, equivalent to about 20 percent of average daily demand last winter.

“A key driver in such strong exports from the U.K. via the Interconnector has undoubtedly been the large year-on-year reduction in storage injections as a result of Rough storage’s closure,” said Dorian Lucas, an energy risk manager at Inspired Energy Plc in Preston, England. “This increase in IUK exports likely represents a step change toward the new norm, with the U.K. using interconnector exports increasingly as a way to manage oversupply.”

This year’s supply to Belgium, which can then be shipped further out into the mainland, has been above the five-year average since March. The U.K.’s only long-term storage site, Rough, was out of operations for maintenance and its operator, Centrica Plc, is seeking to shut it down permanently. Traders have turned to putting gas in other storage sites in The Netherlands and Germany to ensure Britain has enough fuel for winter.

Gas storage in the EU has filled up at above-normal rates this year and stockpiles are above the five-year average, according to data from Gas Infrastructure Europe.

The Dutch government has also limited output at Europe’s largest gas field, Groningen, because of earthquakes. Users of Dutch gas, including the U.K., may need to find alternative supply, and are expected to boost imports of liquefied natural gas and of Norwegian and Russian fuel.

While Brexit isn’t expected to take effect until 2019, it’s still unclear whether Britain will remain in the single energy market, which allows for the free flow of supply. Timera Energy, a U.K.-based consultant, said in a blog post tariffs were unlikely, though gas prices and liquidity could be affected by the separation.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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