HomeBlogFinanceUK struggles to secure long-term gas import deals

UK struggles to secure long-term gas import deals

The British government is struggling to secure long-term gas supply deals with foreign states as ministers fret about leaving taxpayers on the hook if gas prices fall in the coming years.

Liz Truss, former prime minister, said in early October that the UK government was seeking potential gas imports from various countries, including Qatar, Norway and the US, to ensure security of supply after Russia cut supplies to western Europe following its full-blown invasion of Ukraine.

Britain is not as reliant on Russian supplies as other European countries but the weaponising of gas by the Kremlin has forced most of the continent to seek alternative sources.

The shortlived Truss administration set up a new “energy supply task force” to begin negotiations with gas exporting countries for long-term supply deals.

But negotiations have so far foundered as the Treasury resisted long-term contracts at a time when international gas prices were so high over concerns that they would not prove to be value for money.

Kwasi Kwarteng, Truss’s chancellor, prevented the former prime minister from signing a 20-year deal to buy gas from Norway after he warned that the agreement could end up eye-wateringly expensive, according to officials. “Kwasi just said No — it was a bad deal for the taxpayer,” said one person briefed on the discussions.

Downing Street officials said that Truss’s successor Rishi Sunak was still keen on striking long term deals with third countries to ensure Britain has security of supply but the recent fall in wholesale gas prices had forced a reassessment of the price the UK was willing to pay.

“Initially there was a big rush to get these deals, but then the gas price started tumbling,” said one government insider. “People started looking at it again.”

Saad al-Kaabi, Qatar’s energy minister, told the FT last month that the Gulf state and the UK were “engaging more” but added that it was hard to say when a deal would be reached.

“We’re very committed to the UK and ultimately we’ll get somewhere where we can support the UK,” he said. “We’ll be a major player in supporting the UK for the long term for sure.” He also cautioned that no new, sizeable LNG projects would start producing until 2025.

As the world’s biggest exporter of LNG, Qatar has been courted by governments across Europe as they seek alternatives to Russian energy.

But one of the issues Kaabi has been grappling with in negotiations is how European states, including the UK, would procure the gas given their energy companies are privately owned.

Norway’s Equinor, which is majority state-owned, refused to comment on its talks with the UK. Britain already imports about half its gas, including two-thirds from Norway.

The UK is set to sign an energy security agreement with the US later this month, but this is expected to be confined mostly to a willingness to co-operate on nuclear and renewable energy.

One person familiar with the proposed agreement said it was likely to cite the fact that Britain has imported about 10bn cubic metres of gas from US suppliers in the past 12 months, but may not make any commitment to future imports.

A senior Biden administration official confirmed that the US government had held talks with the Truss administration about LNG supplies and clean energy deployment, but reiterated that no deal was imminent.

But the US administration has little direct influence over any long-term export deals, which are negotiated with the private sector. Moreover, US LNG producers have said they have little or no spare capacity to increase shipments.

British energy executives have questioned who would sign the deals if UK government talks with gas exporting states were successful, pointing out that large private energy companies, such as Centrica, normally negotiate long-term agreements directly. “How it might work is a mystery,” said one industry source.

additional reporting by Nathalie Thomas and Richard Milne

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