UK’s Centrica signs $27B gas deal with Norway’s Equinor

British energy giant Centrica, the owner of British Energy, has entered into a substantial long-term agreement with Norwegian energy company Equinor. 

The contract, spanning a decade, involves the supply of natural gas from Equinor to Centrica and is valued at over 20 billion British pounds, equivalent to approximately $27.07 billion in US dollars. 

This significant deal, confirmed by both companies on Thursday, secures a critical energy supply for Centrica and highlights the ongoing strategic energy partnerships between the United Kingdom and Norway. 

The substantial financial commitment underscores the importance of this supply arrangement in the current energy landscape.

Equinor’s president and CEO, Anders Opedal, said in a release:

The flexibility that natural gas offers will play a key role in enabling further development of renewable power and decarbonisation in the UK.

Reducing reliance on gas

The UK is currently undertaking a concerted effort to reduce its dependence on natural gas, driven by ambitious climate targets and a commitment to environmental sustainability. 

However, this endeavor faces significant challenges due to the nation’s existing energy infrastructure.

Currently, a substantial majority, approximately 70%, of British households rely on gas for heating, making it a primary source of residential energy. 

Furthermore, gas-fired power stations play a vital role in the country’s electricity generation, accounting for roughly 25% of the total electricity supply. 

This widespread reliance on gas presents a formidable obstacle in the UK’s transition to cleaner, more sustainable energy sources, necessitating substantial investment and infrastructure changes.

Centrica CEO Chris O’Shea said in a press release:

This landmark agreement underscores the vital role that natural gas plays as a transition fuel as we navigate towards a low carbon energy future.

The agreement

Equinor has secured the long-term agreement to supply the UK with a substantial volume of natural gas. 

Under this agreement, Equinor will provide five billion cubic meters (bcm) of natural gas annually. 

This supply commitment is set to remain in effect until the year 2035, ensuring a consistent and reliable energy source for the UK over an extended period. 

The five bcm annual supply is a significant figure, representing approximately eight percent of the total gas demand for the entire UK. 

This agreement provides flexibility for future energy transitions, permitting the substitution of natural gas sales with hydrogen as needed.

Decline in fossil fuel output

Great Britain has seen a significant drop in North Sea fossil fuel output since its peak in the late 1990s. In line with their climate objectives, the Labour government has announced it will cease issuing new oil and gas licenses.

Britain fulfilled nearly two-thirds of its gas needs through imports in the previous year, with Norway supplying 50% of those imports.

Amid European supply concerns triggered by Russia’s invasion of Ukraine and drastically reduced Russian gas flows, Centrica secured an agreement with Equinor in June 2022. This deal guaranteed additional gas deliveries for the subsequent three winters.

Centrica has established liquefied natural gas agreements with several international energy companies, including Coterra Energy and Delfin Midstream from the US, as well as Petrobras of Brazil.

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