The owner of British Gas has struck a £20bn deal with Norway’s state energy company to buy enough gas to meet nearly 10% of the UK’s needs for the next decade.
Under the agreement, Centrica will buy around 5bn cubic meters of gas from Equinor – enough to supply 5m UK homes – every year from this winter until 2035 at the prevailing market rate.
It is the latest long-term deal between the UK and Norway, which has been one of Britain’s largest sources of imported gas for the last 50 years. But in a nod to Britain’s net zero agenda, the latest agreement will include a clause that allows the UK to swap gas imports for emissions-free hydrogen from Equinor’s UK hydrogen plant.
Equinor is working with Centrica and the energy company SSE on multiple low carbon hydrogen projects on the north bank of the Humber. Equinor’s plans to develop a “pathfinder” hydrogen project at the existing Aldbrough gas storage facility in East Yorkshire alongside SSE could be operational by 2029.
Britain currently imports nearly two-thirds of its gas requirements from Norway, although the UK’s demand for gas fell to record lows last year due to a steady rise in renewable energy output and increased power imports from Europe.
The UK’s gas demand is expected to tumble in the decade ahead as the government’s net zero policies further reduce the need for gas power plants and help homes and businesses choose electric alternatives to fossil fuels.
Chris O’Shea, the chief executive of Centrica, said the “landmark agreement” underscored the “vital role” for gas in securing the UK’s energy supplies as it moves towards a low carbon future. He added it would also pave the way “for a burgeoning hydrogen market”.
The deal is smaller than the last decade-long agreement struck between the pair in 2015, when Centrica agreed to buy about 7.3bn cubic metres of gas each year from Equinor, which, at the time, was also about 10% of the UK’s total gas demand.
Centrica agreed to a top-up deal after Russia’s invasion of Ukraine, which wiped out Russia’s pipeline gas exports to Europe, to more than 10bn cubic metres a year, or about 12% of Britain’s total gas demand.
The government’s official climate adviser, the Climate Change Committee (CCC), has forecast a steep fall in the UK’s demand for gas in the years ahead as it moves towards a net zero economy by 2050.
Gas currently makes up 720 terrawatt hours (TWh), or almost 40% of the UK’s primary energy demand according to the CCC’s carbon budgets, but this will need to fall to 168TWh or less than 15% of primary energy demand by 2050 if the UK hopes to keep within its carbon budgets.
Currently about 70% of homes are heated using gas boilers, while gas-fired power plants account for around a quarter of the country’s electricity supply. The government hopes ambitious targets to install up to 600,000 electric heat pumps in homes every year and keep gas plants for use only 5% of the time in the 2030s will help cut the country’s reliance on gas.
