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National Grid has for the first time raised the prospect that the UK could be cut off from gas supplies from mainland Europe in the event of a no-deal Brexit.
The company said in its winter outlook report that it had modelled a scenario where Britain may not receive any flows of gas through two key interconnector pipelines from Belgium and the Netherlands, although it stressed this remains “very unlikely” and it believed there would still be sufficient sources of gas supplies to meet demand.
If the UK were cut off from direct gas pipeline imports, National Grid said the UK would need to increase its reliance on seaborne imports of liquefied natural gas (LNG), which could lead to higher prices.
The company, which is in charge of ensuring energy supply meets demand, said it was being “prudent” in examining the scenario but it has caught the attention of traders and analysts as it is the first time the scenario has been assessed.
“The central assumption is that in a no-deal situation there will be no impact on the trading arrangements for the gas interconnectors,” National Grid said in its report.
“[But] as a prudent system operator, we have also assessed a scenario where there are no flows on the Belgium and Dutch gas interconnectors from EU exit day one,” it said, adding that there would “need to be sufficient price signals in the market to attract regular LNG cargoes to the UK” if the country were cut off from direct EU pipelines.
Analysts said the fact National Grid was examining the scenario showed that there was at least some risk of the UK potentially being cut off from EU pipeline gas imports should it crash out of the trading bloc.
While cross-border gas trade is expected to continue after Brexit, analysts said there were scenarios where a country may decide to divert pipeline exports away from non-EU members if there was a major disruption to their own supplies.
“If we’re out of the EU there’s no longer an obligation,” said Niall Trimble at the Energy Contract Company. “It wouldn’t be a question of them forbidding exports, but you could have the scenario where informal restrictions take place in the event of high demand across the continent.”
Mr Trimble said such scenarios were not far-fetched. In December 2017 an explosion at Baumgarten in Austria, one of the main entry points for Russian pipeline gas into the EU, caused chaos on the continent as supplies tightened.
On the same day a technical problem on the main gas pipeline from the Netherlands to the UK restricted supplies, while a pipeline bringing UK-produced gas from the North Sea was also shut down due to a crack. Gas prices in the UK jumped by almost half that day, while Italian prices doubled.
“If a technical problem occurs during a period of high demand, such as a continent-wide cold snap, there could be issues,” Mr Trimble said, suggesting that European governments may quietly direct their utilities to keep gas supplies for domestic markets if an event like December 2017 was repeated.
During peak winter demand the UK imports as much as a quarter of its natural gas supplies by pipeline from the Netherlands and Belgium, as well as receiving pipeline gas from Norway, which is not an EU member. It also sources gas from the UK fields in the North Sea and shipments of LNG.
While National Grid said the UK would be able to turn to the LNG market to top up supplies if it was cut off from direct pipeline supplies from the EU, there are questions over how secure or timely these shipments would be.
“LNG is typically challenging to forecast and is subject to uncertainties associated with Asian gas prices and shipping costs,” National Grid said.
The major suppliers of LNG to the UK are the US and Qatar, while the closest export facility is a Russian plant in Siberia, all of which have sailing times of at least a week.
LNG tankers already en route to other customers could be diverted to the UK for the right price, traders said, but there is no guarantee a shipment would be immediately available.
The global LNG market is currently in a state of oversupply meaning more cargoes have been coming to the UK and Europe because they have ample import capacity. But a cold winter in Asia, the main market for LNG, could rapidly tighten supplies.
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