UK gas prices to soar if Russia cuts off supplies to Europe, National Grid warns

Author

Emily Gosden Energy Editor

October 29, 2014

Britain would be forced to pay significantly higher prices to import gas by ship from elsewhere in the world if Vladimir Putin limits Russian exports to the continent

UK gas prices will soar if Vladimir Putin limits gas exports from Russia this winter, National Grid has warned.

Any disruption to Russian exports to Europe is likely to have the knock-on effect of forcing Britain to pay “significantly higher” prices to import more gas by ship from elsewhere in the world, the Grid said.

In its Winter Outlook Report, the company, which is responsible for managing energy supply and demand, said that in most circumstances the UK should remain well-supplied with gas, even if Russia limited its exports.

However, if there was an extremely cold spell and Putin cut off all exports from Russia, then the UK might be forced to take emergency measures to protect household supplies – such as paying industrial customers to use less gas.

About 30 per cent of European gas comes from Russia and roughly half of it passes through the Ukraine under transit agreements. President Putin has threatened that this could be disrupted because of the crisis in the Ukraine.

Although the UK does not import gas from Russia directly, National Grid’s report acknowledges that any restrictions on Russian exports would place pressure on supplies to continental Europe.

As a result the UK would be unable to import as much gas as usual from the continent and would instead end up exporting gas.

The resulting shortfall in UK supplies would be filled by imports of liquefied natural gas (LNG) – gas frozen to minus 160C and shipped in on tankers from countries such as Qatar.

Prices for LNG are currently much higher in Asia than in Europe, meaning that if the UK wants more LNG deliveries to come to the UK it will have to pay a price premium.

UK imports of LNG would more than double in the event of disruption to Russian exports, National Grid modelling suggests.

“LNG is expected to be the primary source of additional supply which is likely to require significantly higher prices than the current winter forward prices,” it said.

President Putin has already limited gas exports to the Ukraine itself and has threatened that there could be disruption to exports passing through the Ukraine to the rest of Europe.

Analysts suggest that Russia will be wary of cutting off exports because it is so dependent on revenues from gas sales.

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