Authored by Viktor Katuna via OilPrice.com,
Although some companies have learned to ride the waves of geopolitics quite efficiently, still in most cases political tensions only complicate the dealings of energy companies. The Skripal poisoning case has driven a massive political wedge between the United Kingdom and Russia (nations whose relations are historically strained already) and is on the verge of blighting their energy ties. The UK Government’s threats to ban Russian gas imports altogether would be a very short-sighted step, the harm of which would take many years to undo. As opposed to the usual rhetoric of ‘‘safeguarding energy security“ and ‘‘countering Russian influence“, both London and Moscow have a lot to win from a good energy relationship.
The Skripal case is slowly turning into a whodunnit where no one will tell you what really happened and you have to reconstruct everything by yourself – why was the allegedly lethal nerve agent not that lethal, who perpetrated the poisoning and how exactly. Usually when analyzing foreign affairs‘ scandals, it is imperative to look at who could benefit from such a deterioration. One thing is for sure – energy companies only stand to lose. Firstly, British companies might see their maneuvering space narrowed down, especially against the background of Brexit jeopardizing Britain’s adherence to the internal energy market (IEM) of Europe. Although the May government wishes to remain in the IEM, so as not to risk the potential $700 million per year expenses it could bear in a worse-case scenario breakup.
Even if a disaster can be averted and the United Kingdom would stay, regardless if in a limited or full-fledged manner, in the IEM, infrastructure funding from EU funds will almost certainly evaporate. This could be one of the Brexit’s most serious energy consequences, since 16 EU projects of common interest are UK-related, without funding from Brussels, many fall into the risk category of not being implemented. Continental Europe might turn out to be more resolute vis-à-vis UK Brexit demands than expected, for instance, it might justifiably ask whether the €9 billion invested in British electricity and gas projects in 2012-2017 under EIB auspices could have been allocated someplace else. But the risk of relinquishing on Paneuropean trade preferences and investment is not the only specter haunting the UK’s energy specialists.
Concurrently with the trends above, the UK North Sea gas production entered the phase of terminal decline after a temporary rebound in 2013-2017. Thus, imports will inevitably play a more significant role in the UK gas matrix as the rate of production decline will outpace that of a forecast demand decline (expected to balance out at around 60 BCm per year). Adding insult to injury, the UK’s largest gas storage facility, Rough, closed down last Summer, wiping out a hefty part of the nation’s potential storage capacity (3.31 BCm). As things stand currently, UK can sustain only 2 percent of...