For the first time in 20 years, Britain will become an importer of liquefied natural gas (LNG) after Qatar Petroleum and ExxonMobil signed a Heads of Agreement (HOA) for the supply of LNG from Qatar’s massive North Field, beginning in 2006/7. The LNG will be produced from two new trains – expected to be the largest ever built – as a second phase in the Qatar gas project in Qatar’s Ras Laffan Industrial City.

The agreement follows two separate pipeline gas supply deals by Britain’s biggest gas supplier, Centrica, which trades abroad under the name of British Gas. British Gas was previously the monopoly gas supplier. The first contract is with Norwegian Statoil for the purchase of 177 Bcf/year over a 10-year period starting in October 2005. The second is with Dutch Gasunie for 283 Bcf/year, also covering a 10-year period from 2005. Together, the two contracts will account for around 10% of Britain’s current gas demand, and both companies are looking at the possibility of building new pipelines to the United Kingdom.

All these deals will help to shore up Britain’s future gas supplies as demand begins to outstrip dwindling indigenous production. They also satisfy the need for the diversification of supply sources, amid fears of over-dependence on any one-import source. According to the U.K. government’s Performance and Innovation Unit (PIU), declining production rates in the North Sea’s U.K. sector from 2004 means that more than 80% of Britain’s gas will have to be imported by 2020. By as early as 2006, the PIU says the U.K. will have to import up to 15% of its gas, compared with the current level of 2%.

Although ExxonMobil has not yet disclosed details of the volume of Qatari LNG it plans to import into the U.K. under the agreement with QP, the implication is that volumes could total more than 494 Bcf/year. The HOA covers the addition of two new LNG trains to the existing three-train Qatargas plant, which ExxonMobil claims will be the largest ever built by the industry. Since the production capacity of LNG trains currently being built is already close to the 244 Bcf/year, it is reasonable to assume that ExxonMobil aims to increase the capacity of its new trains still further.

Certainly, there is no shortage of source gas in Qatar’s North Field, which contains proven reserves of around 494 Tcf. ExxonMobil already has a significant presence in Qatar, with a 25% and 10% share in the Rasgas and Qatargas LNG projects respectively. The company is also pursuing a joint venture with QP to set up a gas-to-liquids (GTL) project in Qatar using its proprietary AGC-21 GTL technology to convert gas from the North Field into high quality liquids products (low sulfur diesel fuel, naphtha and lubricant base- stocks) for export. Further, there are plans to export LNG to the U.K. from part of the so-called Enhanced Gas Utilization (EGU) project, another partnership between ExxonMobil and QP to develop gas from the North Field for sale to domestic and export markets. QP will have a 70% equity interest, and ExxonMobil will have a 30% interest in the new trains producing LNG destined for the U.K.

The company’s plans for the LNG once it reaches British waters are sketchy. Britain currently has no LNG receiving terminal, although Transco plans to build one on the Isle of Grain in the Thames estuary. Rather than make use of a facility owned by a third party, the most likely option is that ExxonMobil will build a new terminal on a site it already owns at Milford Haven, on the west coast of Wales.

The ExxonMobil project has a historical resonance, as the global LNG industry was originally conceived as an Anglo-American enterprise nearly 50 years ago. The Methane Pioneer set sail from Lake Charles, La., with a crew of seven men on board and cargo of 2,200 tons of LNG. The Methane Pioneer docked at Britain’s Canvey Island, in the Thames estuary, and delivered the world’s first ever LNG cargo on the morning of Feb. 20, 1959, before returning light to the U.S.

Following an abortive attempt to import LNG from Venezuela into Britain, a 15-year contract to import Algerian LNG ran its course without interruption from 1964 until 1979. The contract was even extended for several years until major natural gas discoveries in the North Sea indicated that imported LNG would not be part of the nation’s immediate future energy supply portfolio.

In the next five years, all that will change when Britain re-joins the growing ranks of LNG importers, something that could well herald a renaissance of the LNG industry in Britain similar to that recently experienced in the U.S.