LONDON (Reuters) - Centrica has signed a 4.4 billion pound ($7 billion) deal with Qatar to import liquefied natural gas (LNG) over 4 1/2 years as Britain’s import dependence reaches record levels and consumers face ever rising bills.
Centrica, which owns Britain’s biggest household energy supplier British Gas, is to buy 3 million tonnes of LNG per year, or the equivalent of about 13 percent of Britain’s annual residential gas demand, it said in a statement on Wednesday.
The deal will help Britain secure its energy needs as domestic North Sea supplies dwindle, but at the same time expose the country to growing import dependence.
The deal extends a 2-billion pound, three-year LNG supply agreement between Centrica and Qatargas, the world’s biggest producer of shipped gas, for 2.4 million tonnes/year, which was struck in 2011 and expires in July 2014.
The extension deal, which runs until the end of 2018, is more expensive than the initial agreement, reflecting rising global prices for the fuel, led by a surge in Asian demand.
British gas prices currently trade at around $10 per million British thermal units (mmBtu) versus prices in Asia, the world’s top LNG importer continent, at $17.50/mmBtu.
Britain depends increasingly on Qatar to make up for falling domestic resources but has so far failed to receive a supply guarantee from the Gulf producer, allowing Qatar to divert cargoes away from Britain to the highest-priced market.
A Centrica spokesman said that over half of the LNG supply contracted for from Qatar in the 2011 deal had been delivered so far.
“It is vital that the UK has a diverse range of sources of supply to meet its energy requirements,” Centrica’s Chief Executive Sam Laidlaw said in a statement.
The size of most British household energy bills is determined by the price of wholesale gas and electricity prices. Recent announcements by utilities of steep tariff increases have pushed the topic to the top of the political agenda.
Britain, whose dependency on foreign gas reached record levels in Q1 2013, depends on gas via pipelines from Norway, its biggest supplier, and from mainland European countries such as the Netherlands and Russian gas imported through Belgium.
Output from Britain’s North Sea gas fields peaked at the turn of the century and has declined sharply since.
“Long term deals of this kind with reliable suppliers like Qatar are vital for our future energy security,” UK Energy Minister Michael Fallon said.
The price paid for the gas until the end of 2018 will depend on how UK NBP gas market prices develop and, unlike some Qatari sales deals to Asia, it will not be tied to oil prices.
So far this year, 93 percent of Britain’s LNG imports have come from Qatar even though Qatari deliveries have slowed sharply, with 38 percent fewer cargoes arriving in Britain compared with the same period last year.
“The signing of this agreement represents our further commitment to have Centrica as a partner for the UK market which continues to be one of the most important LNG markets in Europe,” Qatargas’ Chief Executive Officer Khalid Bin Khalifa Al Thani said in a statement.
Centrica deepened ties with Qatar earlier this year when it agreed a joint venture to buy Suncor Energy’s natural gas business in Canada for $986.73 million.
Additional reporting by Karolin Schaps and Daniel Fineren in Dubai; Editing by Jason Neely and David Cowell