The harsh energy facts facing the UK were spelled out in a government report published in February. This forecast that the UK would become a net importer of gas in 2006 and a net importer of oil in 2010 as domestic energy demand expands and North Sea supplies are depleted. 'By 2020 we could be dependent on imported fuel for three-quarters of our total primary energy needs,' the report warned.

The forecast envisages an historic turnaround in the UK's energy cycle. The country's early industrialisation was the result of capitalising on massive local coal reserves. The shift to gas in the early 20th century was made possible by the adoption of new technologies that allowed the production of gas from coal. In the 1960s and 1970s, Britain's household gas market was converted to accept North Sea supplies. And yet, with the exception of the period between 1964 and 1980 when liquefied natural gas (LNG) was imported from Algeria, the UK never needed to look beyond the European continental shelf for gas.

This is about to change. Within a generation, the overwhelming bulk of the gas used in homes, factories and power stations will come from long-distance suppliers. The question the UK will soon have to address is how far it is prepared to depend on gas from the Gulf.

The UK energy balance in 2002 showed gas was already accounting for the largest portion of primary energy demand, at 39 per cent of the total, followed by oil at 35 per cent and coal at 15 per cent. Nuclear power accounted for 9 per cent and renewable sources - such as wind and wave power - provided the rest.

The trends for the future are compelling. Gas demand on 7 January 2003 was 450 million cubic metres, more than 5 per cent up year on year. This rate of increase in gas demand is expected to continue for the foreseeable future.

The strategic decision taken in the 1980s to phase out coal-burning power stations and replace them with gas plants was reinforced at the end of the decade by the privatisation of the UK's electricity generation sector, further undercutting coal's position. Oil demand growth is driven overwhelmingly by the transport sector, where technical changes to cut gasoline consumption will offset much of the impact of rising car ownership. The Department of Trade & Industry (DTI) forecasts that most commercially-viable deep-mined coal will be exhausted within a decade and all the UK's loss-making nuclear power stations will have reached the end of their viable lives not long after.

The final clinching issue is London's commitment to reducing carbon dioxide emissions. The government report says the UK aims to reduce such emissions by 60 per cent by 2050. A range of environmental measures is planned, but one of the biggest contributors will be the shift towards gas as the dominant feedstock for electricity generation. The last coal-burning power station in the UK is expected to close by 2016.

The implications of rising gas demand and declining North Sea supplies were highlighted in The State of the Nation report published on 1 July by the UK's Institution of Civil Engineers (ICE). It said that practically all the UK's power stations will be burning gas by 2020 and 90 per cent of their feedstock will be imported. Says ICE director-general Tom Foulkes: 'This country has been largely self-sufficient in electricity generation for the past 100 years. This is about to change radically.'

ICE called for a revival of the nuclear programme and other measures to contain the growth of the UK's need to import gas. 'If future gas supplies were interrupted, this country would have major difficulty keeping the lights on,' Foulkes adds.

The warning of supply interruptions is firmly rebutted by Jonathan Stern, head of the energy programme at the Royal Institute for International Affairs (RIIA), a foreign policy think-tank supported by the UK government. 'There is nothing new in Britain being dependent on imported gas,' he says. 'We took Algerian supplies in the 1960s and 1970s and we should not be worried about buying from abroad in the future.'

This issue is about to become a practical one for Qatar, the world's fastest-growing LNG exporter. It entered the LNG market only at the end of 1996 but this year is expected to produce 14 million tonnes. This figure is projected to rise by one quarter in 2004, with Qatar becoming the world's leading LNG exporter by about 2007. In the latest move, Qatar Petroleum (QP) was reported at the end of June as saying it aimed to lift production to 75 million tonnes in 2010.

Doha's aggressive efforts to become a global gas player have implications for the UK. A year ago, QP announced it was forming a 70:30 joint venture with the US' ExxonMobil Corporation to supply LNG to the UK. The heads of agreement for the deal called for a regassification terminal with capacity of 10 million tonnes to be built.

Planning application for the project was submitted in April 2003 and it showed that Qatari ambitions had grown substantially. The plan calls for a terminal to be built near Milford Haven, in west Wales, by the QP/ExxonMobil joint venture; it would have capacity of 15 million tonnes a year - equivalent to one fifth of UK gas consumption this year. The terminal, planned for completion in 2007, will take the entire output of the Qatar Liquefied Gas Company II (Qatargas II) project, which calls for the construction of two 7.8 million-t/y trains at Ras Laffan (see Oil & Gas, page 10; MEED 6:6:03).

The fate of the QP project now lies with the UK's Pembrokeshire County Council and the Pembrokeshire Coast National Park Authority, which have to decide whether to grant planning permission for an LNG receiving terminal on the site of a former Esso refinery at Herbranston. Curiously, the DTI, the UK government department supervising energy developments, has no statutory right to intervene in the development of what will be one of the UK's largest and most important energy projects.

Two other UK LNG projects are being studied. The National Grid Transco (NGT) has been granted planning permission by Medway Council to convert its existing Isle of Grain terminal in the Thames estuary into an LNG regassification terminal. The terminal is scheduled for commissioning on 1 January 2005 and will be capable of processing 3 million tonnes a year (t/y) of LNG. The third scheme is for an LNG terminal, also at Milford Haven, to be built by Petroplus Tankstorage of the Netherlands, which has acquired a 200-240-hectare site of a former oil refinery owned by Chevron, in 1998. Construction is to be completed by the fourth quarter of 2006.

LNG terminals are now moving up the UK government agenda. On 30 June, the Office of the Gas & Electricity Markets (Ofgem), the UK's energy market regulator created in 2000, published its initial views about the regulation of new LNG terminals in the UK to deal with the three plans and others on the horizon. The report anticipates the implementation, from 1 July 2004, of new EU gas and electricity directives calling for third parties to be allowed access to LNG facilities. Ofgem says its approach is that new LNG regassification terminals will be obliged to open to third-party suppliers, but that exemptions - logically including the QP/ExxonMobil terminal - will be granted on a case-by-case basis.

'We will have to see how the EU directive will be applied so this process is at a very early stage,' an Ofgem spokesman said on 3 July. The same can be said about QP's attempt to break into the booming European market. If its plans go ahead, the UK could be the beachhead for massive growth in Qatar's sales to the continent. The implications, and what is at stake, are enormous.

Edmund O'Sullivan