THE TIMES (UK): Britain looks east for new energy: “CONCERNS over Britain’s dwindling domestic energy supplies have forced politicians and the biggest gas and electricity groups to look east for a new source. Their sights have settled on Russia.

December 20, 2004

By Angela Jameson

CONCERNS over Britain’s dwindling domestic energy supplies have forced politicians and the biggest gas and electricity groups to look east for a new source. Their sights have settled on Russia.

By next year Britain will be a net importer of gas, 40 years after British Petroleum made the first discovery of gas in the North Sea.

Ofgem, the energy market regulator, said last month that there is sufficient power capacity to keep Britain’s fires burning this winter — even through a Siberian cold snap — but that situation will change between now and 2010, as older nuclear generators and dirty coal-fired power stations are turned off and North Sea gas supplies run down. British gas production peaked in 2000 at 108.4 billion cubic metres of gas a year and is now declining slowly.

The UK Offshore Operators Association (UKOOA), the industry body that represents oil and gas producers, says that by the end of the decade we will be able to cover only 60 per cent of our gas needs from the North Sea. Thus the search is on for new sources of gas from which to import.

One fifth of the world’s gas reserves are in Russia and are controlled by Gazprom, the giant Russian utility. Gazprom was in London last month and began an aggressive campaign to gain one tenth of Britain’s gas market within the next five years. The company, which supplies a quarter of European demand, has declared that this would increase its sales by 40 per cent a year. That puts Gazprom in direct competition with Britain’s traditional gas producers, notably BP, Total and Shell.

At present the Russian group sells about three billion cubic metres of gas to the UK market, which totals 100 billion cubic metres. It expects to increase its sales to 13 billion cubic metres by 2010. It will do so by focusing on the industrial sector, rather than supplying directly to homeowners. Industry analysts have no doubt that the group will achieve its ambitious target, which will propel it to the position of second-largest UK supplier.

Nobody will put a date on when Britain will run dry of oil supplies, but Wood Mackenzie, the energy consultancy, believes that the country will be producing as little as 23,000 barrels of oil a day by 2025, compared with just under two million barrels today, although that estimate does not include new finds that could boost supplies.

Gordon Brown has been trying to make the North Sea fiscal regime more attractive to producers, having stung the industry with a windfall tax in 2002. The Department of Trade and Industry has also been working on schemes with UKOOA aimed at prolonging the life of North Sea reserves.