The Potential Impact on the UK of a Disruption in Russian Gas Supplies to Europe
The geopolitical tensions between Russia and Europe over the build-up of Russian troops on the Ukrainian border have generated concerns over the extent of Europe’s reliance on Russian natural gas, and the possible consequences should the flow of Russian gas to Europe be curtailed, either partially or completely. In this paper, we analyse the potential impact on the UK of such a curtailment of Russian pipeline gas supplies to Europe.
We find that while the UK would be unlikely to face a physical shortage of supplies, the ‘ripple effect’ of price increases at hubs in continental Europe would be quickly replicated on the UK trading hub, the National Balancing Point (NBP). There would also be an impact on physical flows of gas both in and out of the UK, as LNG cargoes would be regasified at spare capacity in UK LNG import terminals, but then re-exported to continental Europe via the two interconnectors with Belgium and the Netherlands. This would render the UK a ‘land bridge’ for LNG arriving into North-Western Europe, given that the three terminals in that part of continental Europe (Dunkerque in France, Zeebrugge in Belgium, and Gate Rotterdam in the Netherlands) would all likely be operating at full capacity.
In terms of the existing legal/regulatory frameworks for cooperation and ‘solidarity’ with regard to security of supply, we argue that while the position of the UK relative to neighbouring states remains uncertain with regard to post-Brexit agreements on the application of the solidarity provisions of the EU Security of Supply Regulation, pricing dynamics between the UK and neighbouring continental European markets would be sufficient to cause gas supplies to move from one market to another, albeit with the potential for some infrastructure bottlenecks.
Finally, in terms of impact on UK gas demand, the price spikes that would almost certainly accompany any physical disruption in Russian pipeline gas supplies to Europe would be quickly felt in the UK, despite the lack of direct UK dependence on Russian pipeline gas supplies. The first part of UK gas demand to be curtailed by such price spikes – beyond the high levels currently seen on the UK wholesale gas market – would be industrial demand. However, the remainder of UK gas demand (for power generation and heating) is far less elastic, and strongly dependent on seasonal and short-term weather factors. For this reason, concerns over an interruption in Russian supply to Europe whose effects would ripple through to the UK will remain heightened until the end of the winter heating season.