US pledges to export 9-10 Bcm of LNG to UK over next year under energy pact

The US has pledged to export 9-10 Bcm of LNG to the UK over the next year as part of a broad energy security pact announced Dec. 7.

Under the new UK-US Energy Security and Affordability Partnership, the two countries will “drive work to reduce global dependence on Russian energy exports, stabilize energy markets and step up collaboration on energy efficiency,” the UK government said.

The announcement comes after UK Prime Minister Rishi Sunak and US President Joe Biden met at the G20 Summit in Bali last month where they agreed to take forward work to address the UK’s short-term energy needs.

A potential commitment to 10 Bcm of US LNG deliveries to the UK in 2023 was widely reported ahead of the meeting.

The UK is far less reliant on Moscow for its gas than other countries in Europe, with Russian gas and LNG supplies making up less than 4% of UK supply in 2021.

In April, the UK announced its intention to impose a ban on Russian LNG imports.

Sunak said Dec. 7 the UK and US would “ensure the global price of energy and the security of our national supply can never again be manipulated by the whims of a failing regime.”

The initiative will be steered by a new UK-US Joint Action Group, led by senior officials from the UK government and the White House.

“The group will work to ensure the market delivers sustained increases in the supply of LNG to UK terminals from the US,” it said.

As part of this effort, the UK government said the US would strive to export at least 9-10 Bcm of LNG over the next year via UK terminals, more than doubling the level exported in 2021.

“This will be good for both UK and European partners as we look to replenish gas storage next year,” the UK government said.

Any US-UK commercial term or spot deal would have to be agreed by US LNG producers or offtakers and UK buyers, but the two governments plan to work to facilitate the supply arrangement.

“Both governments will work to proactively identify and resolve any issues faced by exporters and importers,” the UK government said.

In tandem with shoring up security of energy supply, the group will also work on measures to increase energy efficiency and reduce demand for gas.

“It is already estimated that there could be an 8% reduction in demand for gas in the UK this winter,” the UK government said.

US LNG imports
US LNG supplies to the UK have already risen strongly so far in 2022, with volumes totaling 9.1 Bcm of gas equivalent in the first 10 months, according to data from S&P Global Commodity Insights.

That compares with a total export volume of 4 Bcm from the US to the UK in the whole of 2021, the data showed.

The UK has large LNG import capacity at its three operational terminals — two at Milford Haven in Wales (Dragon and South Hook) and the Isle of Grain facility in southeast England — totaling more than 35 million mt/year (48 Bcm/year).

The US already pledged earlier this year to increase LNG supplies to the EU in 2022 by 15 Bcm and to deliver an additional 50 Bcm/year in subsequent years compared with 2021 levels.

The UK relies on imported gas to meet around half of its demand, with Norway the top supplier, accounting for some two-thirds of the UK ‘s imports last year, according to government data. LNG makes up the bulk of the remainder, but the UK is relatively exposed to the spot market for additional LNG purchases.

Spot gas prices across Europe hit record highs in late summer, while spot LNG prices also remain at sustained highs. Platts, part of S&P Global Commodity Insights, assessed the DES Northwest Europe marker for LNG delivery in January at $33.22/MMBtu on Dec. 6.

The US has been the main supplier of LNG to the UK in 2022 with its supply of 9.1 Bcm in the first 10 months, followed by Qatar (7.2 Bcm), according to data from S&P Global.

UK utility Centrica already has a long-term LNG purchase deal with US LNG producer Cheniere Energy signed in 2013. It loaded its first cargo from Cheniere’s export facility at Sabine Pass in Louisiana in 2019.

Under the terms of the agreement, Centrica purchases some 1.75 million mt/year of US LNG for an initial 20-year period, with the option for a 10-year extension. The agreement is on a FOB basis, giving it destination rights for the cargoes.

As well as the US, Qatar has also been front and center of UK efforts to lock in new long-term LNG supply deals and Qatari energy minister Saad al-Kaabi met in October with the UK’s Business Secretary at the time, Jacob Rees-Mogg.

Other energies
The UK government said Dec. 7 the new UK-US action group would also work to reduce global reliance on Russian energy by driving efforts to increase energy efficiency and supporting the transition to clean energy.

The group also plans to look to accelerate the development of clean hydrogen globally and promote nuclear as a secure source of energy. On nuclear, the UK and US will promote nuclear energy as a “safe and reliable” part of the clean energy transition, the UK government said.

“The partnership will also drive international investment in clean energy technologies, from offshore wind to carbon capture,” it said.

“This will complement the work the UK and US are doing together with G7 partners to support the use of clean and sustainable energy in developing countries.”
Source: Platts