Key Takeaways
- The UK's reliance on liquefied natural gas (LNG) is growing as it becomes a key energy source in meeting rising demand.
- Geopolitical factors and global supply chain disruptions are driving the UK's increased LNG imports.
- Infrastructure development and investments are positioning the UK as a pivotal player in the global LNG market.
Over the past 20 years, liquefying natural gas has become an increasingly popular method of transporting natural gas to market. Liquified Natural Gas (LNG) is created by cooling natural gas to -160°C, changing its state from gas to liquid.
Liquification enables the transportation of gas by ship, as the volume of gas is reduced by 600 times, and natural gas becomes safer to transport. Therefore, it provides an alternative means of transportation where pipeline infrastructure does not already exist or is not economically viable.
Once at its destination, LNG is regasified at LNG terminals and used in the same way as natural gas that was never liquefied. The LNG market is one of the fastest growing commodity markets, partly due to a depletion of easily accessible natural gas reserves globally.
The increased importance of LNG in the global energy market is reflected in continuing investment in liquefaction infrastructure. For instance, Shell recently stated that it is boosting supplies to existing LNG plants.
UK LNG imports
Historically, the UK produced natural gas from the UK Continental Shelf, which was transported inland via pipeline. Domestic gas production exceeded demand between 1997 and 2003, with the UK a net exporter of gas.
Since 2004, UK demand has increasingly exceeded production levels; as a result, the UK has relied on imports of natural gas.
The UK began importing LNG for commercial use in 2005 with import levels minimal until 2008; they then increased rapidly before peaking in 2011. Since then, the volume of LNG imports has largely fluctuated in line with economic conditions.
In 2019, LNG imports peaked again, accounting for just under three-quarters of the 2011 peak. Warm weather in Asia reduced LNG demand while new projects in Qatar, the US and Russia increased supply. LNG spot prices reached record lows and European players, including the UK, demanded more LNG as a result.
In 2020, lockdowns imposed across the globe in a bid to curb the COVID-19 pandemic reduced demand for natural gas, particularly in key Asian markets. As a result, LNG prices declined, which buyers in Europe, including the UK, took advantage of.
In 2021, UK LNG imports declined, owing to prices reaching record highs.
In 2021, LNG accounted for 17% of the gas supplied to the UK through production and imports, down from 22% in 2020.
Import sources
The UK was the third largest LNG importer in Europe in 2021.
Qatar was the largest import source for the UK, accounting for 38.8% of UK LNG imports, though 26.5% of imports were derived from the US. Increased Asian demand also encouraged the UK to source LNG shipments from Peru.
Final Word
The growing importance of LNG in the UK energy market has led to the development of some of the most globally significant LNG terminal players in the UK.
According to BEIS’ 2021 Supply of Liquefied Natural Gas in the UK report, global natural gas demand will fall in 2022, due to higher gas prices following the Russia-Ukraine conflict.
However, the International Energy Agency is expecting global LNG trade to reconfigure, with Europe, including the UK, overtaking Asia as the major market for LNG in 2022.
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