Gneiss: More UK production, fewer LNG imports key to meeting demand and keeping emissions at bay post-2030

Gneiss Energy, a UK-based strategic and corporate finance advisory firm operating within the energy and natural resources sectors, has published a report on the potential negative effects the UK’s gas policy discouraging investments in local gas production could have on the environment and supply.

Gas will continue to play a significant role in the UK’s energy mix well into the 2030s even if the Labour Government’s ‘2030 Clean Power Action Plan’ is followed, Gneiss Energy states in its report called ‘UK Gas Policy Scoring Zero.’

Since the Labour government’s plan to raise and extend the energy profits levy (EPL) on oil and gas production to 78% is thought to discourage energy investments, the advisory firm believes the country will need to rely more heavily on imports.

According to Gneiss, the two main contenders are gas from Norway and imported liquid natural gas (LNG). Since liquefaction, transportation–which also entails methane leak risks, and regasification require energy, LNG imports are considered more emissions-intensive than pipeline gas.

By the time it reaches the consumer, imported LNG is said to have four times the embodied CO2 emissions as gas from the UK continental shelf (UKCS), the report states.

Furthermore, increased LNG imports would potentially require developing more terminals in the UK. This comes with a hefty price tag since building a single terminal costs from $500 million to $2 billion, depending on size and complexity.

This sentiment was echoed in a recent report by Reclaim Finance and BankTrack, which urges banks to stop financing LNG export terminal buildout as this could unleash more than 10 gigatonnes of greenhouse gas (GHG) emissions.

While Norwegian gas comes with an attractive emissions profile, Norway is the supplier of choice for many countries, especially following Russia’s invasion of Ukraine, which caused European gas prices to triple in 2022. This spike in demand has caused Norwegian production to reach maximum capacity, requiring the UK to explore other options.

Gneiss claims that a 36% reduction in emissions would be achieved if 100% of the UK’s supply came from domestic sources. While this scenario is unlikely, the firm believes this is a strong emissions-focused argument for increased UK production, especially when considering several large, undeveloped UK gas fields with attractive emissions profiles and significant capital investment requirements.

The future of the two largest undeveloped oil and gas fields offshore the UK, Shell’s Jackdaw in the North Sea and Equinor’s Rosebank, was recently brought into question following a court ruling that requires emissions from burning oil and gas to be taken into account when approving such projects.

“While asset quality in the UK has deteriorated as fields have matured, there is a lot of potential runway left. The UK’s natural gas assets are, in particular, very competitive on emissions. By impeding investment in new projects, UK policymakers are virtually guaranteeing a reliance on increased imports of emissions-intense LNG from sources that are often of worse environmental pedigree than domestic assets,” said Jon Fitzpatrick, Managing Director at Gneiss Energy.

As explained by Gneiss, more productive assets generally produce fewer emissions. While this is partially a result of the assets themselves, an additional factor is the higher relative flaring in the UK than in Norway due to a lack of power from shore initiatives and investment in electrification.

Players such as Wood Mackenzie and Offshore Energies UK (OEUK) believe the UK could unlock billions of pounds from existing North Sea oil and natural gas assets if the right sets of fiscal and regulatory policies are put in place.

Gneiss believes the solution for the country to slash its emissions as the domestic demand continues in the future is either through more reliance on Norway’s pipeline gas-as more gas from elsewhere is expected to contribute to pollution, increased UK production, or a combination of the two. 

“At a time of climate crisis and increasing global uncertainty, it would make more sense from an economic, environmental, social and strategic perspective to support and ramp up UK domestic gas production,” noted Fitzpatrick.

However, given the uptick in Europe’s demand for Norwegian gas, there is no guarantee that Norway will be able to meet the increased demand in the UK since other countries rely on the Nordic country for their gas needs too, the report concludes.