* Supply risks for UK are from Norway, global LNG market
* Britain's gas production falling by 4.5 pct a year
* Import bill could rise to 16 bln stg/year next decade
* UK could run out of domestic gas by next decade
By Henning Gloystein and Nina Chestney
LONDON, April 15 Britain is well placed to deal
with the possibility of a Russian cutoff of gas to Europe during
the Ukraine crisis, because it receives most of its imports from
Norway and has significant domestic reserves.
As relations worsen between Kiev and Moscow, European gas
customers fear that Russia could cut off exports to Ukraine,
which is an important transit route for natural gas to the
Russia supplies around a third of Europe's gas, some 40
percent of which it ships through Ukraine. Gazprom has
threatened to cut supplies if Ukraine continues to fail to pay
its bills and has warned of a possible reduction in onward
deliveries to Europe.
Although Britain does not import Russian gas directly, it
does receive some gas from the continent, to which Russia
exports over 160 billion cubic metres (bcm) of gas a year.
Britain's supply risks mainly involve a disruption to
Norwegian gas supply or turmoil in the Middle East, which could
affect imports of liquefied natural gas (LNG) from Qatar.
"The physical problem of interruptions at this time of year
is low. We are in spring and going into summer, and we have low
demand and a lot of gas in storage," Jonathan Stern, chairman of
the Natural Gas Research Programme at the Oxford Institute for
Energy Studies, told Reuters.
"A Norwegian disruption would be the biggest problem for the
UK at present. We are receiving very little LNG from anywhere,
because Asian prices are high, and they are taking all of the
LNG out of Europe."
Another factor that will affect Britain's gas market for
years to come is the drop in its domestic production by about
two thirds from its peak in 2000 to 37 bcm a year now, less than
half of annual demand.
The government hopes the decline will slow and that Britain
will still produce 19 bcm of North Sea gas by 2030.
But if the decline does not slow, Britain will run out of
home-produced gas by the early 2020s, doubling its current
annual import bill of 8.48 billion pounds ($14.2 billion) to 16
billion pounds within a decade.
Becoming an import-dependent country increases supply risks.
Britain's two single biggest suppliers are Norway, which
pumps its gas through the North Sea via several pipelines, and
LNG imports from overseas, mostly from Qatar.
Norway's exports to Britain are expected to remain stable at
around 25-30 bcm for the next decade at least, but LNG sourcing,
volumes and prices will vary widely as Britain competes with
buyers in Asia and Latin America, where gas prices are higher
than in Europe.
"Demand in Asia for LNG is high and still rising, despite
high transportation costs. If the U.S. decides to increase its
LNG exports, Europe will have to reach into its pocket to
prevent all LNG from being shipped to Asia," said Hans van
Cleef, a senior energy economist at ABN Amro.
The two main ways that Britain could improve its supplies
would be to boost its own shale gas output and increase its
storage capacity, allowing it to create a cushion against
Because Britain in the past could rely on its own
production, its gas storage sites, even when fully topped up,
can meet only around two weeks' worth of demand. This compares
with around 15 weeks in France or Germany, which have always
relied largely on imported gas.
As Britain's resources dwindle, pressure has mounted to
invest more in storage capacity, especially since 2013 when an
unusually long winter almost depleted its stocks, causing
extreme price spikes and fears of outages.
Despite these calls, British utility Centrica called
off two gas storage projects last year after the government
decided against subsidising such projects, saying it would cost
around 750 million pounds over 10 years.
Britain is also in the early stages of exploring for shale
gas, but most analysts expect annual production to remain below
10 bcm in the 2020s.
"Without shale, we are forecasting we will be importing 70
percent of our gas by 2025," Minister of State for Energy
Michael Fallon said this month.
($1 = 0.5976 British Pounds)
(editing by Jane Baird)