The small pipeline playing an oversized role in the energy crisis
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.
The new owner of WH Smith’s high street arm is drawing up plans which could result in the closure of nearly a quarter of the stores operated by Hobbycraft, the arts and crafts chain.
Sky News has learnt that Modella Capital, a private investment firm which specialises in taking over troubled retailers, is preparing to launch a company voluntary arrangement (CVA) at Hobbycraft as soon as Wednesday.
People close to the proposals said that nine of its shops would be closed, with the loss of roughly 100 jobs, and that 18 more would remain open only if negotiations with landlords over rent cuts concluded successfully.
A further 97 stores will remain unaffected by the CVA, the people added, protecting 1,800 jobs.
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If the talks with landlords do not progress as envisaged and the 18 affected stores are also earmarked for closure, at least 150 more redundancies could be triggered based on Hobbycraft’s average number of employees per store.
Some job losses are also expected at the company’s head office and distribution operations, according to insiders.
The Hobbycraft CVA is expected to be launched shortly before Modella also pursues a restructuring at The Original Factory Shop (TOFS), the discount chain it acquired just two months ago.
Modella owns WH Smith. File pic: NetStorage
One industry source speculated that as many as between 30 and 40 TOFS outlets could close, resulting in hundreds more layoffs.
The dual restructuring processes will raise questions about whether Modella plans a similar cull of shops and workers at WH Smith, which it has said will be renamed TG Jones following the takeover.
In a statement, a Modella spokesman said: “Modella Capital is absolutely committed to bricks and mortar retail, at a time when the sector is coming under increasing pressure.
“[Modella] understands that high streets provide a vital service to consumers, are an essential source of employment and are key to the future success of local economies.
“Modella Capital believes that many retailers can thrive on the high street; particularly those with a distinctive offer and a loyal customer base.
“Where necessary, Modella Capital has the skills and experience to restructure retailers that require it, in order to ensure they create profitable, ongoing businesses that will continue to serve communities and employ thousands of people across the UK.”
FRP, the professional services firm, is overseeing the Hobbycraft CVA, while Interpath Advisory is working on the equivalent process at TOFS.
CVAs – a widely used tool in the retail and hospitality sectors in recent years – are frequently utilised to facilitate store closures and rent cuts from landlords.
Modella bought Hobbycraft, which was founded in 1995, from the private equity firm Bridgepoint last summer.
Business
Mission: Impossible? Chancellor heads to the IMF with a very big challenge – and she’s not alone
There will be much to chew over at the International Monetary Fund’s (IMF) spring meetings this week.
Central bankers and finance ministers will descend on Washington for its latest bi-annual gathering, a place where politicians and academics converge, all of them trying to make sense of what’s going on in the global economy.
Everything and nothing has changed since they last met in October – one man continues to dominate the agenda.
Six months ago, delegates were wondering if Donald Trump could win the election and what that might mean for tax and tariffs: How far would he push it? Would his policy match his rhetoric?
Donald Trump. Pic: Reuters
This time round, expect iterations of the same questions: Will the US president risk plunging the world’s largest economy into recession?
Yes, he put on a bombastic display on his so-called “Liberation Day”, but will he now row back? Have the markets effectively checked him?
Behind the scenes, finance ministers from around the world will be practising their powers of persuasion, each jostling for meetings with their US counterparts to negotiate a reduction in Trump’s tariffs.
That includes Chancellor Rachel Reeves, who is still holding out hope for a trade deal with the US – although she is not alone in that.
Read more:
PM and Trump step up trade talks
Ed Conway on the impact of US tariffs
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Could Trump make a deal with UK?
Are we heading for a recession?
The IMF’s economists have already made up their minds about Trump’s potential for damage.
Last week, they warned about the growing risks to financial stability after a period of turbulence in the financial markets, induced by Trump’s decision to ratchet up US protectionism to its highest level in a century.
By the middle of this week the organisation will publish its World Economic Outlook, in which it will downgrade global growth but stop short of predicting a full-blown recession.
Others are less optimistic.
Kristalina Georgieva, the IMF’s managing director, said last week: “Our new growth projections will include notable markdowns, but not recession. We will also see markups to the inflation forecasts for some countries.”
She acknowledged the world was undergoing a “reboot of the global trading system,” comparing trade tensions to “a pot that was bubbling for a long time and is now boiling over”.
She went on: “To a large extent, what we see is the result of an erosion of trust – trust in the international system, and trust between countries.”
IMF managing director Kristalina Georgieva. Pic: Reuters
Don’t poke the bear
It was a carefully calibrated response. Georgieva did not lay the blame at the US’s door and stopped short of calling on the Trump administration to stop or water down its aggressive tariffs policy.
That might have been a choice. To the frustration of politicians past and present, the IMF does not usually shy away from making its opinions known.
Last year it warned Jeremy Hunt against cutting taxes, and back in 2022 it openly criticised the Liz Truss government’s plans, warning tax cuts would fuel inflation and inequality.
Taking such a candid approach with Trump invites risks. His administration is already weighing up whether to withdraw from global institutions, including the IMF and the World Bank.
The US is the largest shareholder in both, and its departure could be devastating for two organisations that have been pillars of the world economic order since the end of the Second World War.
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Here in the UK, Andrew Bailey has already raised concerns about the prospect of global fragmentation.
It is “very important that we don’t have a fragmentation of the world economy,” the Bank of England’s governor said.
“A big part of that is that we have support and engagement in the multilateral institutions, institutions like the IMF, the World Bank, that support the operation of the world economy. That’s really important.”
The Trump administration might take a different view when its review of intergovernmental organisations is complete.
That is the main tension running through this year’s spring meetings.
How much the IMF will say and how much we will have to read between the lines, remains to be seen.
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