Norway strikes deal with Centrica to supply extra gas to UK

Natural gas valves Source: iStock/Ryosha

Britain will get more natural gas from key exporter Norway over the coming winters, easing pressure on a market that’s suffered wild price swings amid persistent supply fears.

Thursday’s agreement between Norwegian gas giant Equinor ASA and the UK’s Centrica plc underscores the importance of the Nordic country to Britain’s energy market as supply concerns send prices soaring once again. The UK, like many other buyers in Europe, has shunned Russian fuels following the invasion of Ukraine, with Centrica vowing to exit all deals with exporter Gazprom PJSC.

Equinor will add around 1 billion cubic meters of gas a year to its existing contract with Centrica, bringing total annual volumes to more than 10 billion cubic meters, the Norwegian company said in a statement.

The agreement will “ease the pressure and provide some more certainty ahead of what may be a difficult winter,” Centrica chief executive officer Chris O’Shea said in the filing.

Russia this week stepped up an energy war by cutting gas supplies through the largest pipeline to Europe to less than half of its usual volumes. The move exacerbates a supply crunch already compounded by the outage of a major liquefied natural gas export facility in the US.

European gas futures have jumped about 70 per cent this week to around 140 euros a megawatt-hour. Prices in Britain, which lacks storage capacity and relies heavily on imports, have surged almost 90 per cent.

Centrica, the largest provider of electricity and gas to UK consumers, has been working with suppliers and the government to meet the country’s energy needs, it said. The new deal with Equinor will cover the next three winters, going some way toward replacing the gas supplied by Gazprom.

Earlier this month, the British company also applied for a license that would allow it to reopen the country’s largest gas storage site. The Rough facility has been producing gas since 2018 after inventory operations halted. It’s not yet clear how long it will take to convert it back. 

Equinor typically sends 20 billion to 22 billion cubic metres of gas to the UK every year, covering more than a quarter of demand. The company has said it’s open to more long-term deals with European buyers given the current market situation. Centrica signed its 10-year contract with Equinor in 2015. 

© 2022 Bloomberg L.P.

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