The small pipeline playing an oversized role in the energy crisis

Published

3 years ago

December 8, 2022

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The chances are you haven’t heard of the BBL pipeline.

It’s a 235km steel tube which runs under the North Sea between Balgzand in the northern tip of the Netherlands and Bacton in Great Britain.

It’s one of those bits of innocuous infrastructure which, most of the time, no-one except energy analysts pay all that much attention to.

But let’s spend a moment pondering this pipe, because it could prove enormously consequential for all of us in the coming months.

Indeed, BBL has already played a silent but essential role in the Ukraine war and, for that matter, the fate of Europe, because this is one of the two main pipelines transporting gas between the UK and Northern Europe.

Actually, BBL is the smaller of the two pipes, the other of which is the rather unimaginatively-named “Interconnector” pipe. But the reason it’s worth focusing on BBL is because in the past few days something rather interesting happened there.

Before we get to that, though, it’s worth reminding ourselves of the big picture here, the challenge facing Europe: a desperate shortage of energy.

Here’s the best way of understanding it: this time last year, Europe (including the UK) was consuming roughly 85 billion cubic metres of natural gas a month. Of that, about 21 billion cubic metres (bcm) – roughly a quarter – came via Russian pipelines.

That gas didn’t just go into our boilers and gas-fired power stations.

It was a feedstock which helped us manufacture chemicals and fertilisers.

It fed us, it fuelled industry, it helped keep the lights on.

In the wake of the Russian invasion of Ukraine, suddenly Europe couldn’t take that 25% of its energy for granted any more. And indeed, most of the Russian supply has since dwindled (it’s now down 81% to about 4bcm a month).

And so much of what might today be categorised as economic news – the rocketing rate of inflation, the squeeze on household incomes and the recession we’re now sliding into – really comes back to this gap, between the gas we used to consume and the gas we can now lay our hands on.

And the short answer is that getting hold of that extra gas isn’t easy at all.

Partly that’s because most of the non-Russian sources which are already pumping gas into European pipelines (which is to say: mainly Norway but, to a lesser extent, the UK, Netherlands and Algeria) are already producing about all they can.

These days you can ship gas (in the form of Liquefied Natural Gas (LNG), a supercooled liquid) across the ocean from Qatar and the US, but that depends on a few things.

The first is actually getting hold of that gas. The UK on Wednesday published details of a new “US-UK Energy Security and Affordability Partnership” which aims to provide more LNG to the UK. That matters because Britain and Europe are essentially competing with China and other Asian nations on global markets for these cargoes.

The second (and perhaps even more important) factor is having terminals where you can receive and re-gasify the LNG and then feed it into your domestic pipeline network.

But there are only so many of these ports and regasification facilities in Europe. Germany, for instance, has none (though it’s got some temporary capacity coming up soon). The UK has lots. Indeed, it has more LNG capacity in its three ports (two at Milford Haven, one at Isle of Grain) than Belgium and the Netherlands have in total.

The logic of this was that back at the start of the conflict, it looked quite plausible that the UK would become a sort of energy “land bridge” across which gas could be transited to Europe. And that indeed is precisely what happened, which brings us back to the pipeline crossing from the UK to the north of Europe.

Over the past year, a stupendous amount of LNG has been coming into UK ports, drawn in by the stupendously high gas price, from where it has been transferred across the UK’s pipeline network and thence into the European system.

To put this into perspective, in the four summers since 2017, the average amount of natural gas transferred from the UK was around 5.7 trillion cubic metres. This past summer the total was 20.5 trillion cubic metres.

It’s worth dwelling on this for a moment, for it represents one of the under appreciated stories of the Russia-Ukraine war.

Much of the gas which replenished the storage facilities in Europe, which should help them survive the coming winter while keeping homes heated, despite the absence of Russian gas, came via the UK – via the BBL and Interconnector pipelines.

And that’s actually understating it, because those pipelines were only so wide, and so could only carry a certain proportion of the LNG flowing into the UK, but what also happened this summer is that UK gas power plants went into overdrive, burning that gas and turning it into electricity, which was also fed via undersea cables into Europe.

This mattered. Much of France’s nuclear power fleet was out of action this summer as water levels in French rivers ran too low to provide the necessary coolant. British electrons were part of the explanation for why the lights never went out in France.

This astounding flow of gas (which of course has its own climactic consequences) caused some interesting price fluctuations this past year. As we reported earlier in the summer, it helped suppress UK day-ahead gas prices down to surprisingly low levels.

For a period in May and June, the UK wholesale gas price was less than half the level in continental Europe – because the UK was awash with all these natural gas molecules trying to fit themselves into these steel pipes coming out of Bacton.

But in recent weeks those flows have begun to drop, which brings us to the interesting thing that changed in the past few days.

For the first time since the Russian invasion of Ukraine and the extraordinary rollercoaster in the gas market, a small quantity of natural gas begun to flow back into the UK.

It’s important not to overstate this. The numbers are very small indeed. But it’s a reminder that actually, in “normal” times, these pipelines serve a very different purpose from the one they’ve served in recent months.

Britain doesn’t have much domestic storage for natural gas. While Germany has about 266 terawatt-hours of storage capacity, the UK has only 53, barely enough to keep boilers going for more than a week or two.

However, the UK strategy in recent years has been to use Europe as a kind of storage system. Think of these underground caverns as a kind of bank.

You deposit gas in them in the warm months and take it out when it gets cold. And in “normal” times the UK has “deposited” its gas in Europe in the summer, sending much of the stuff that came out of the North Sea (and some stuff from those LNG terminals) across the two pipelines and those molecules went into European storage.

And in winter, the UK would typically “withdraw” the gas from Europe when it got cold and it needed a little more for peoples’ boilers. Into Europe in the summer; out of Europe in the winter.

But that brings us to this winter. The UK has put an extraordinary amount of gas into European storage in the summer. What happens if it gets really cold? In any normal winter, it would need to get that gas out of Europe via those pipelines. But this, of course, is not a normal winter. There is a chance that the remaining flows of gas from Russia dry up further, meaning there could be a real shortage. In such circumstances, what happens?

If the market carries on working, then that would push up prices high on continental Europe, but the logic is that in order to attract that gas across the channel, the UK would have to pay even higher prices than continental Europe. In other words, while prices in the UK have been lower than Europe for most of the summer, they could well be higher than Europe for most of the winter.

There is a sign that this is already happening.

In the past couple of days, those prices have converged. But there is also a scarier question: what if the market doesn’t function, because of political interference? What if European nations decide that storage in, say Germany (or for that matter the European Union) cannot leave? Where does that leave the UK, which tends to rely on those pipeline flows from Europe in the event of a cold snap.

The short answer is that no-one really knows. What we do know is that this story isn’t over yet. Gas prices are already eye-wateringly high, especially when you consider that the Government is effectively subsidising them. It’s not implausible that they get even higher.

Business

Bank shares take fright as budget tax hike is floated

Published

2 hours ago

August 29, 2025

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Bank shares take fright as budget tax hike is floated

Shares in UK banks have fallen sharply on the back of a report which urges the chancellor to place their profits in her sights at the coming budget.

As Rachel Reeves stares down a growing deficit – estimated at between £20bn-£40bn heading into the autumn – the Institute for Public Policy Research (IPPR) said there was an opportunity for a windfall by closing a loophole.

It recommended a new levy on the interest UK lenders receive from the Bank of England, amounting to £22bn a year, on reserves held as a result of the Bank’s historic quantitative easing, or bond-buying, programme.

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It was first introduced at the height of the financial crisis, in 2009.

The left-leaning think-tank said the money received by banks amounted to a subsidy and suggested £8bn could be taken from them annually to pay for public services.

It argued that the loss-making scheme – a consequence of rising interest rates since 2021 – had left taxpayers footing the bill unfairly as the Treasury has to cover any loss.

The Bank recently estimated the total hit would amount to £115bn over the course of its lifetime.

The publication of the report coincided with a story in the Financial Times which spoke of growing fears within the banking sector that it was firmly in the chancellor’s sights.

Her first budget, in late October last year, put businesses on the hook for the bulk of its tax-raising measures.

Ms Reeves is under pressure to find more money from somewhere as she has ruled out breaking her own fiscal rules to help secure the cash she needs through heightened borrowing.

Other measures understood to be under consideration include a wealth tax, new property tax and a shake-up that could lead to a replacement for council tax.

Analysts at Exane told clients in a note: “In the last couple of years, the chancellor has been protective of the banks and has avoided raising taxes.

“However, public finances may require additional cash and pressures for a bank tax from within the Labour party seem to be rising,” it concluded.

The investor flight saw shares in Lloyds and NatWest plunge by more than 5%. Those for Barclays were more than 4% lower at one stage.

A spokesperson for the Treasury said the best way to strengthen public finances was to speed up economic growth.

“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms,” they added.

Business

Controversial P&O Ferries boss Hebblethwaite to quit

Published

4 hours ago

August 29, 2025

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Controversial P&O Ferries boss Hebblethwaite to quit

The man dubbed “Britain’s most hated boss” for his controversial policy of sacking hundreds of seafarers and replacing them with cheaper agency staff is to quit.

Sky News can exclusively reveal that Peter Hebblethwaite, the chief executive of P&O Ferries, is leaving the company.

Sources said he had decided to resign for personal reasons.

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Mr Hebblethwaite joined the ranks of Britain’s most notorious corporate figures in 2022 when P&O Ferries – a subsidiary of the giant Dubai-based ports operator DP World – said it was sacking 800 staff with immediate effect – some of whom learned their fate via a video message.

The policy, which Mr Hebblethwaite defended to MPs during subsequent select committee hearings, erupted into a national scandal, prompting changes in the law to give workers greater protection.

Under the new legislation, the government plans to tighten collective redundancy requirements for operators of foreign vessels.

In a statement issued in response to a request from Sky News, a P&O Ferries spokesperson said: “Peter Hebblethwaite has communicated his intention to resign from his position as chief executive officer to dedicate more time to family matters.

“P&O Ferries extends its gratitude to Peter Hebblethwaite for his contributions as CEO over the past four years.

“During his tenure the company navigated the challenges of the COVID-19 pandemic, initiated a path towards financial stability, and introduced the world’s first large double-ended hybrid ferries on the Dover-Calais route, thereby enhancing sustainability.

“We extend our best wishes to him for his future endeavours.”

A source close to the company said it anticipated making an announcement on Mr Hebblethwaite’s successor in the near term.

A former executive at J Sainsbury, Greene King and Alliance Unichem, Mr Hebblethwaite joined P&O Ferries in 2019, before taking over as chief executive in November 2021.

Insiders claimed on Friday that he had “transformed” the business following the bitter blows dealt to its finances by the COVID-19 pandemic and – to some degree – by the impact of Britain’s exit from the European Union.

P&O Ferries carries 4.5 million passengers annually on routes between the UK and continental European ports including Calais and Rotterdam.

It also operates a route between Northern Ireland and Scotland, and is a major freight carrier.

The company’s losses soared during the pandemic, with DP World – its sole shareholder – supporting it through hundreds of millions of pounds in loans.

Its most recent accounts, which were significantly delayed, showed a significant reduction in losses in 2023 to just over £90m.

The reduction from the previous year’s figure of almost £250m was partly attributed to cost reduction exercises.

The accounts also showed that Mr Hebblethwaite received a pay package of £683,000, including a bonus of £183,000.

“I reflected on accepting that payment, but ultimately I did decide to accept it,” he told MPs.

“I do recognise it is not a decision that everybody would have made.”

The row over his pay was especially acute because of his admission that P&O Ferries’ lowest-paid seafarers received hourly pay of just £4.87.

Mr Hebblethwaite had argued since the mass sackings of 2022 that the company would have gone bust without the drastic cost-cutting that it entailed.

The company insisted at the time that those affected by the redundancies had been offered “enhanced” packages to leave.

Last October, the then transport secretary, Louise Haigh, said: “The mass sacking by P&O Ferries was a national scandal which can never be allowed to happen again,” adding that measures to protect seafarers from “rogue employers” would prevent a repetition.

“This issue has been ignored for over 2 years, but this new government is moving fast and bringing forward measures within 100 days,” Ms Haigh added.

“We are closing the legal loophole that P&O Ferries exploited when they sacked almost 800 dedicated seafarers and replaced them with low-paid agency workers and we are requiring operators to pay the equivalent of National Minimum Wage in UK waters.

“Make no mistake – this is good for workers and good for business.”

The minister’s description of P&O Ferries as “rogue”, and suggestion that consumers should boycott the company, sparked a row which threatened to overshadow the government’s International Investment Summit last October.

Sky News’s business and economics correspondent, Paul Kelso, revealed that DP World had withdrawn from participating in the event, and paused a £1bn investment announcement.

The company relented after Sir Keir Starmer publicly distanced the government from Ms Haigh’s characterisation of DP World.

Business

How the US trade war is now targeting you from today

Published

10 hours ago

August 29, 2025

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How the US trade war is now targeting you from today

Donald Trump has cancelled a loophole from today that had allowed consumers and businesses to be spared duties for sending low-value goods to the United States.

The so-called de minimis exemption had applied across the world before Trump 2.0 but the president has taken action – and the UK may soon follow suit – as part of his trade war.

The relief had allowed goods worth less than $800 (£595) to enter the US duty-free since 2016.

But now, low-cost packages face the same tariff rate as other, more expensive, goods.

The reasons for the latest bout of protectionism are numerous and the ramifications are country and purpose specific.

What is changing?

It was no accident that China was the first destination to be slapped with this rule change.

The duty exemption on low-value Chinese goods was ended in May as US retailers, in fact those across the Western world, complained bitterly that they were being undercut by cheap clothing, accessories and household goods shipped by the likes of Shein and Temu.

From today, Mr Trump is expanding the end of the de minimis rule to the rest of the world.

Why is Trump doing this?

The president is not acting purely to protect US businesses.

More duties mean more money for his tariff treasure chest, bolstering the goodies already pouring in from his base and reciprocal tariffs imposed on trading partners globally this year.

The Trump administration has also called out “deceptive shipping practices, illegal material and duty circumvention”.

It also believes many parcels claiming to contain low-value goods have been used to fuel the country’s supplies of fentanyl, with the importation of the illegal drug being used by the president as a reason for his wider trade war against allies including Canada.

How will it apply?

Under the new rules, only letters and personal gifts worth less than $100 (£74) will still be free of import duties.

Charges will depend on the tariff regime facing the country from where the goods are sent.

Fox example, a parcel containing products worth $600 would raise $180 in extra duties when sent from a country facing a 30% tariff rate.

It has sparked chaos in many countries, with postal services in places including Japan, Germany and Australia refusing to accept many items for delivery to the US until the practicalities of the new regime become clearer.

What about the UK?

All goods not meeting the £74 exemption criteria now face a 10% charge because that is the baseline tariff the US has slapped on imports from the UK.

We were spared, if you remember, higher reciprocal tariffs under the so-called “trade deal”.

How will the process work?

All shipping and delivery companies will be wading through the changes, with the big international operators such as DHL, FedEx and the like all promising to navigate the challenge.

Royal Mail said on Thursday that it would be the first international postal service to have a dedicated operation.

It said consumers could use its new postal delivery duties paid (PDDP) services both online and at Post Offices.

But it explained that business customers faced different restrictions to individuals.

Businesses would be charged a handling fee per parcel to cover additional costs and duties would be calculated based on where items were originally manufactured.

While business account customers could be handed an invoice for the duties, it explained that consumers would have to pay at the point of buying postage.

No customs declaration would be required, it concluded, for personal correspondence.

Is the US alone in doing this?

The answer is no, but it remains a fairly widespread relief globally.

The European Union, for example, removed de minimis breaks back in 2021, making all e-commerce imports to the bloc subject to VAT.

It is also now planning to introduce a fee of €2 on goods worth €150 or less to cover the costs of customs processing.

Should the UK do the same?

The UK has been under pressure for many years to follow suit and drop its own £135 duty-free threshold as retailers battle the cheap e-commerce competition from China we mentioned earlier.

A review was announced by the chancellor in April.

Sky News revealed in July how the total declared trade value of de minimis imports into the UK in the 2024-25 financial year was £5.9bn – a 53% increase on the previous 12-month period.

Any rise in revenue would be welcomed, not only by UK retailers, but by Rachel Reeves too as she looks to fill a renewed black hole in the public finances.