The UK is totally dependent on Qatar for its gas supplies. This dependency may create havoc in the upcoming days for UK’s gas market. Currently, Iran is threatening to block the strategic Strait of Hormuz waterway, which is essential for gas exports. However, this is not only the dark cloud looming over the UK gas industry. As opposed to other European nations, Britain has not made long term gas contracts. Of all the gas coming to the UK from Qatar, only 24% comes under fixed contracts. This means that the remaining is sold to the highest bidder in the international market by Qatar.
The gas from the North Sea in the UK has slowed down due to ageing fields and lack of channelised investments. From 2010 to 2011, 64% of the UK gas came from Qatar. Meanwhile, production of gas in the UK has fallen by 6.2% since 2005.
After Qatar, Norway was the second-largest supplier of LNG to Britain. However, gas from Norway decreased to 17% due to competition from other customers like Argentina and South Korea.
Despite the British government’s aim to procure gas from diverse sources, the dependency on gas from Qatar has increased steadily. Qatar is now responsible for 30% of the total global LNG. The North Field has been developed so successfully that Doha has imposed a moratorium on its development until 2015. Qatar has also made long term contracts with Taiwan and Thailand. It has also commenced selling spot exports to Japan, as Japan is scavenging the LNG market to cover the demand caused by shutting down its nuclear plants.
In such a scenario, the UK must find alternative gas suppliers. There are many hurdles in achieving this objective. The new LNG from the Atlantic basin is limited to Algeria and Angola, both of which have critical supply constraints. The fact that the UK faces more competition for LNG from the South American States makes the problem even more challenging.
To ensure a secure gas supply in the long term, the UK has to find alternative gas suppliers and start cutting down on its gas shipments from Qatar. Japan, too is entirely dependent on other economies for the oil and gas supply. However, it is in a much favourable and secure position than the UK because of its diverse suppliers.
There is an oversupply of gas in Europe during winters. The mild temperatures have lowered household energy prices. It is doubtful that the government will seriously tackle the ever-expanding energy security crisis in such a scenario. This is a temporary relief, especially as the blocking of the Strait of Hormuz looms on the horizon.