British Gas owner Centrica has signed a £6.2bn ($8bn) mega deal with US fossil fuel producer Delta Midstream, in a welcome boost for the UK’s power supplies.
The agreement is for 1m tonnes per annum of liquefied natural gas (LNG) for 15 years, and means Centrica will take delivery of around 14 LNG cargoes per year.
This could provide enough energy to heat five per cent of UK homes on an annual basis.
Supplies will be shipped from Delfin Deepwater Port, located 40 miles off the coast of Louisiana, with first operations expected to commence in 2027.
This follows Centrica’s three-year supply agreement with Equinor, which will heat 4.5m UK homes through to 2024 and the reopening of the Rough gas storage facility in October 2022.
Rough now provides half of the UK’s total gas storage capacity with the potential to store over 50bn cubic feet (bcf) of gas, enough to heat almost 10 per cent of UK homes throughout winter.
City A.M. understands Centrica is pushing for a cap and floor mechanism to provide a guaranteed income stream, in exchange for investing up to £2bn restoring the project to full capacity.
The deal between Centrica and Delfin also follows the UK and US signing an energy and security partnership last December – with 9bn cubic metres of LNG being shipped from the US to the UK this year.
LNG is natural gas that has been reduced to a liquid state, through a process of cooling before it is later converted back into a gas for use.
For the liquefaction process it is cooled to below -150 degrees celsius before being re-gasified.
Demand for LNG is booming across the West, with Europe and Asia competing for supplies chiefly from the US and Middle East – driving up prices last summer and bolstering the coffers of producers.
This will lead to more ships carrying LNG than oil supertankers within the next five years, according to recent research from Global Data.
However, the energy source is controversial due to its very high carbon emissions intensity and its growing role in the UK’s supply mix as domestic resources dwindle.
Centrica chief executive Chris O’Shea considered the deal to be “vital to the UK’s energy security.”
He said: “The last year has demonstrated the critical importance of investing in the UK’s energy security. Addressing the immediate impact of the energy crisis on our customers has been one of our biggest priorities, but I’m acutely aware that we also need to look ahead to manage future risks and secure our supplies.
“As well as strengthening the trade links between the UK and US, this deal – alongside reopening Rough and our major deal with Equinor – shows that Centrica is investing heavily to future-proof the UK’s energy supply and address one of the underlying causes of the energy crisis.”