May seeks alternatives for Russian gas after spy scandal

By Jessica Shankleman, Anna Shiryaevskaya and Elena Mazneva on 3/14/2018

LONDON and MOSCOW (Bloomberg) -- The spy poisoning scandal in the UK is spilling into energy.

Prime Minister Theresa May responded to a chemical weapon attack against a former spy on British soil with a range of measures against Russia, such as asset freezes and the biggest diplomatic expulsions since the Cold War. The UK will also look at getting natural gas from sources outside Russia.

While Europe as a whole gets more than a third of its gas from Russia, that share is lower in the UK, which receives the bulk of its fuel from North Sea fields and Norway. Still, Moscow-based Gazprom PJSC was the second-biggest supplier to major industrial consumers in the UK last year, according to Britain’s energy regulator Ofgem.

“The extent to which Russia uses its energy as a means to influence and have an impact on those countries that are in receipt of it and also the finances that it provides is an important one,” May said. “We will be continuing to discuss with the European Union not just our energy security but that wider energy security issue.”

Britain buys some Russian gas through links with mainland Europe and has also been getting more by ship from a new liquefied natural gas plant in northern Siberia.

“Great Britain benefits from highly diverse and flexible sources of gas supply,” the UK Department of Business, Energy and Industrial Strategy said in a statement. “We estimate less than 1% of our gas comes from Russia and are in no way reliant on it." Russia’s Gazprom, which holds a monopoly on gas exports by pipeline, sold fuel to the UK worth $2.85 billion last year, according to data provided by the press office of Russia’s customs service. This accounted for more than half of the country’s commodities sales to Britain last year, which were worth a total $4.49 billion, according to the Russian Economy Ministry.

While gas supply volume decreased 9.2% from a record in 2016, Gazprom sees sales rising this year after recent cold snaps. Its domestic rival, Novatek PJSC, contributed to UK supply this winter with LNG cargoes from Russia’s Arctic, where the company started a $27-billion plant in December. London is also home to Gazprom’s biggest energy trading unit.

Protecting the UK against Russian LNG may prove difficult. Uncommitted LNG travels where prices are highest and it’s the market that decides where the fuel goes. While the U.S. is pitching its LNG to Europe, for most of the year those cargoes are more likely to go to energy-hungry and higher-paying Asian economies.

UK energy union GMB said it questions “how effective the sanctions will be when half of our liquid gas imports this year have come from Russia and Russian companies provided 6% of our gas consumption in 2017.”

“We need a serious strategy and investment in UK energy to make sure we can stand on our own two feet,” the union said.

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