Another 10 years of Norwegian gas for the UK

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28 November 2011, Gas

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The agreement with Statoil, which is worth GBP13bn over 10 years starting in 2015, will mean that 50 billion cubic meters of gas will be transported to the UK from Norway, equivalent to roughly 5% of the UK's annual demand. Centrica is also investing GBP965m in Norwegian North Sea oil and gas assets.

The UK Prime Minister David Cameron was involved in the negotiations, which reassuringly reinforces the government's commitment to gas. The UK imports 50% of its gas needs, and this will increase to 70% by 2020. Hence, it is important to have a reliable, trustworthy supplier. Importing gas through Europe via interconnectors makes the UK vulnerable to interruptions in the supply of Russian gas, especially as the final supply picture from the Nabucco pipeline is as yet unclear.

However, this deal is more "business as usual" rather than being a clear indication of Centrica turning its back on the UK from a production perspective. This is because Centrica signed a 10-year agreement with Statoil in 2002 for the same amount of 50 billion cubic meters of gas.

In July 2011, Centrica said that it would invest GBP1.3bn to secure new sources of energy during 2011, with much of the investment outside the UK. Centrica also said that it would decrease investments in the UK North Sea due to higher taxes on oil and gas production. However, this has not deterred a consortium of oil giants, including Shell and BP, which has announced investments of GBP10bn in UK North Sea oil projects.

Encouragingly for the UK, a recent study published by Professor Alex Kemp of the University of Aberdeen suggests that the UK North Sea could have 35 billion barrels of oil and gas reserves remaining, versus 40 billion barrels produced so far. Although Centrica is not investing as much as it might due to its views on the tax hikes, there looks to still be a long-term future for UK oil and gas.

Source: Datamonitor

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