US shale gas is set to be exported to the United Kingdom under a new contract signed by British utility company Centrica plc (LSE:CNA).
The company announced this morning that it had entered into a long-term deal with Cheniere Energy Partners LP to purchase 91,250,000 mmbtu (89 billion cubic feet) of annual liquefied natural gas (LNG) volumes for export.
This is equivalent to approximately 1.75 million metric tonnes per annum (mmtpa), which is enough to meet the annual gas demand of around 1.8 million UK homes. It will be supplied from the Sabine Pass liquefaction plant in Louisiana.
The deal opens up the UK market to cheap supplies of gas from the United States, where shale gas developments have unlocked a plentiful source of natural gas which can be liquefied for export. Prices in the US are on average three times lower than in the UK and so far the price falls across the Atlantic have not impacted on the international market.
In fact, shortages have caused prices in Europe and Asia to rise. In the UK prices have spiked as supplies are diverted to Asian markets, and last week the failure of a key pipeline pushed prices even higher. Compounding the current situation, an unusually cold spell of weather has meant that UK demand is significantly higher than normal for the time of year.
UK Prime Minister David Cameron today welcomed the agreement between Centrica and Cheniere and said that future gas supplies from the US will help to diversify Britain’s energy mix and provide consumers with a new long-term, secure and affordable source of fuel.
Commentators pointed out that Centrica will retain destination rights for the LNG and could divert the supply to other markets, for example when UK demand is low or when prices are high elsewhere.
First deliveries under the agreement are planned to be made in September 2018. The contract covers an initial 20-year period and includes an option for a 10-year extension. Financial terms were not disclosed, but media reports today said that Centrica would pay GBP10bn over the fixed term of the contract.