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Centrica has reached a £20bn deal to buy gas from Norway over the coming decade, in a sign that the UK will remain reliant on fossil fuel imports as it winds down North Sea exploration.
The energy group will buy 5bn cubic metres of gas from Norway’s state-owned Equinor each year from October until 2035 — equivalent to about 9 per cent of the UK’s gas demands last year and enough to supply 5mn homes.
Centrica’s Equinor deal is about half the amount it has bought annually over the past three years, but around the same as an earlier deal in 2015.
Ministers want to reduce the UK’s overall gas use to cut emissions.
The deal includes a clause allowing the natural gas supplies to be swapped for hydrogen from Equinor’s UK hydrogen production projects, if the market for hydrogen, which does not emit carbon dioxide when burned, eventually takes off.
Hydrogen has been touted as a lower carbon source of heating for UK homes, but ministers are focused on trying to get households to install electric heat pumps instead.
However, the development of the market for hydrogen had been slower than anticipated, both companies said on Thursday.
Anders Opedal, Equinor’s chief executive, said the deal was “very important for energy security”. Chris O’Shea, Centrica’s chief executive, added: “The lights stay on because of our friends in Norway.”
Britain increasingly relies on imports of gas as its own North Sea basin ages, accelerated by the UK government’s plan not to issue new exploration licences and to develop wind and solar power instead.
Last year, the UK imported about £10.4bn of gas, or more than two-thirds of its overall gas demand, with more than 50 per cent of its imports coming from Norway.
Centrica has bought gas from Equinor since 2005. Three years ago — during a global scramble to secure gas supplies that led to a spike in prices — it increased its annual purchase by 1 bcm a year to 10 bcm a year.
The 5 bcm due to be supplied under the current deal will be piped over from gasfields in Norwegian waters, although Equinor also produces gas on the UK side of the North Sea.
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Centrica has been pushing the UK government for support to refurbish its Rough gas storage site in the North Sea, which it hopes to use in the long term to store hydrogen instead of natural gas.
O’Shea has complained that the site is losing money but needs to stay open to boost energy security. The UK has scarce energy storage compared with European peers, and at the start of the year Centrica issued a warning that storage reserves had fallen to less than a week.
The UK gets most of its gas on a “just-in-time” basis through pipelines to the North Sea, the EU and Norway, and ships from around the world including the US. This leaves it open to short-term price fluctuations.
