LONDON (Reuters) - Britain’s largest energy supplier Centrica (CNA.L) has signed new gas contracts with two of the world’s largest producers, Russia’s Gazprom and Norway’s Statoil, reflecting the UK’s growing dependence on gas imports as its production declines.
The Gazprom deal give Britain a much higher exposure to Russian-sourced gas and comes despite European Union pressure to reduce the region’s dependence on Russian gas due to frosty relations with President Vladimir Putin over the conflict in Ukraine.
Gazprom’s supplies to Centrica will rise to 29.1 billion cubic metres (bcm) until 2021, compared with 2.4 bcm agreed in a three-year deal in 2012. On average of the six-year deal, Gazprom will provide roughly 9 percent of Britain’s gas needs, according to Reuters calculations.
“Whatever we might want as Europe, we need to be very careful about being pragmatic about the realities of it,” Centrica Chairman Rick Haythornthwaite at the company’s annual general meeting two weeks ago. “I think it’s unrealistic to think that Russian gas is going to be replaced in the near-term.”
Gazprom, Russia’s top natural gas producer, meets a third of EU gas needs.
Gas production in Britain, which was self-sufficient at the turn of this century, has fallen nearly 70 percent since a peak in 2000. Dependence on imports leave it heavily exposed to production risks that are beyond its control.
The gas will be sourced by Gazprom’s London-based marketing and trading arm, which takes gas from a variety of sources, a Centrica spokeswoman said.
Centrica’s agreement with Statoil adds another 2.3 bcm per year to a ten-year 50-bcm deal signed in 2011, with supplies starting from this October. Statoil covers around 20 percent of Britain’s gas needs.
“This is a gas-indexed type of contract and of course the details negotiated remain confidential between Centrica and us, but it’s not an oil-indexed contract,” said Ann-Elisabeth Serck-Hanssen, acting senior vice president for marketing and trading at Statoil.
The shift away from traditional oil-indexed contracts shows gas suppliers are proving more flexible in providing spot-based contracts that more accurately reflect changes in gas prices.
The additional gas volumes contracted by Centrica are worth more than 8 billion pounds, according to Reuters calculations based on the average forward prices of seasonal British gas contracts until 2018.
Centrica said all of its global gas and electricity supply deals, which include liquefied natural gas contracts and cross-border electricity flows, now have a value of over 50 billion pounds.
Editing by David Holmes and Susan Thomas