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Turning up the gas - Imports will keep UK's power plants running

National Grid Transco (NGT) yesterday took steps to strengthen Britain's fragile energy supply situation by unveiling plans to spend £355m in tripling the capacity of the country's first new liquefied natural gas (LNG) terminal.

The investment comes as Britain turns from gas exporter to importer and only days before energy minister Mike O'Brien signs a treaty with Norway to bring in gas from Scandinavia.

Trial shipments of LNG are due to be delivered in special vessels within weeks from Algeria to a newly-built NGT storage plant on the Isle of Grain in Kent.

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The power network operator believes demand for LNG will increase much more than it expected and this has encouraged it to increase capacity at the Kent site from its current level of 3.3m tonnes a year to 9.8m by 2008.

"As Britain moves progressively from being an exporter to a significant importer of natural gas, it is vital that the infrastructure is in place to meet the nation's gas requirements," said Edward Astle, an NGT director.

LNG is seen as a crucial part of Britain's efforts to bridge the gap between rising demand for gas and falling supply from the North Sea which has already led to serious domestic price increases.

Gas consumption grew by two thirds in the decade from 1992 and NGT predicts a further 14% increase between 2002 and 2011. LNG could account for a quarter of UK gas supplies by 2010 and as much as 40% by 2015 with companies such as Centrica also building an import terminal at Milford Haven.

The fast decline in North Sea output, and a sharp rise in wholesale gas prices over the last winter, has led some to question whether Britain can rely on market-driven solutions favoured by the government and the regulator, Ofgem, to maintain energy supply.

Ofgem's managing director for markets, Steve Smith, hailed the Kent expansion, saying it showed the market was delivering the investment needed to secure gas supplies as the UK's reserves decline.

"Projects like the Isle of Grain, and the expansion of Britain's pipeline links with Europe and the Norwegian Ormen Lange gas field will help to reduce the pressure on gas prices as the first projects begin to come on stream later this year."

Energy minister Mike O'Brien will be in Oslo on Monday to sign a cooperation treaty with Norway about a new North Sea pipeline that is also crucial to help satisfy the UK's need for gas.

Using a new pipeline, called Langeled, Norway will be able to supply 20% of the UK's gas consumption from 2007, compared with 15% last year and 12% in 2003.

The 745-mile construction, the largest underwater pipeline in the world, will provide gas from the recently-discovered Ormen Lange fields off the west coast of Norway to Easington, on the Durham coast. It will go via the Norwegian port of Nyhamma and the Sleipner oil and gas fields in the middle of the North Sea.

Other projects covered by the treaty are the joint exploration of oil and gas fields on the border between the Norwegian and British zones, as well as the joint use of infrastructures.

A key reason for the increase in demand for gas is because it is being used for electricity generation. Though the government is committed to developing energy from renewable resources, gas-fired plant, which accounts for almost 30% of the UK's electricity generation, is set to rise with a number of companies considering new plant.

But energy companies have little choice given that Britain's nuclear capacity is ageing and the government shows little appetite to reopen the nuclear debate.

The door may not have been bolted on a nuclear option but the government's current view is that it will only get back on the agenda if it can be done much more cheaply.

Coal, too, is facing a difficult future. Under EC rules, coal-fired power stations must fit expensive equipment to scrub out sulphur dioxide emissions.

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