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Analysis: Gas, power hub to trump London's top airport project

Jetty eight is seen at National Grid's liquified natural gas (LNG) plant at the Isle of Grain in southern England August 16, 2013. REUTERS/P
Jetty eight is seen at National Grid's liquified natural gas (LNG) plant at the Isle of Grain in southern England August 16, 2013. REUTERS/P

By Henning Gloystein

LONDON (Reuters) - The London mayor's preferred plan for a new airport is likely to fall flat, because it would force relocation of one of Europe's biggest liquefied natural gas terminals at a time when Britain relies ever more on overseas gas.

Mayor Boris Johnson in July gave his backing to three plans for a new airport, which he said were deliverable by 2029, and favored a 68 billion pound ($106.6 billion) project on the Isle of Grain in Kent, 30 miles east of London.

"The Isle of Grain has the space to accommodate a world-class, efficient hub airport," Johnson said in a submission to the Airport Commission, which is assessing the options and will make recommendations in a final report by summer 2015.

But building an airport there would require the dismantling and relocation of one of Britain's most important energy hubs including the LNG terminal, gas storage sites and a big power station in a complex that dominates the eastern end of the peninsula.

The mayor's office did not identify an alternate location for the energy hub, and analysts say another site is not likely to be found close to London that can take the 350 meter-long LNG tankers that arrive at the terminal.

"There are so many things that don't make sense with the Isle of Grain as an airport, and energy is certainly a huge factor in this," Zoe Metcalfe, aviation director at Buro Happold Consulting, said.

"Where else close to London will you find a space to build another deep-water port for LNG tankers that's accepted by the public? It just doesn't work," she added.

Britain relies increasingly on gas imports because its own North Sea reserves are dwindling fast. The Grain LNG terminal, Europe's biggest in terms of tank capacity, is able to import over 20 billion cubic meters (bcm) of gas per year, around 20 percent of Britain's needs.

National Grid has planned to expand it.

"By 2020, over 60 percent of UK Gas is expected to be imported," National Grid said in a report on the Grain terminal.

"The UK faces a significant energy challenge over the coming years, and the developments taking place at the Isle of Grain will ensure meeting that challenge," it said.

LNG tankers bring supercooled (minus 160 degrees Celsius), pressurized gas from overseas suppliers such as Qatar.

Once in Britain, the gas is pumped through cryogenic pipelines into massive gas storage tanks before it is regasified to 600 times its liquid volume and fed into the grid.

STRATEGIC ENERGY HUB

The mayor's submission backs a plan by architect Norman Foster for a new Thames Hub Airport with four runways that could handle up to 150 million passengers a year.

The 35-page submission includes only one paragraph on the existing use of the Isle of Grain as an LNG and power hub.

It calls for the LNG terminal to be moved. "National Grid's LNG facility is too tall and too close to the proposed airport site and would need to be relocated," the submission said.

Analysts say relocation of the Grain energy infrastructure, including company compensation, would cost around 3 billion pounds.

The 39-page Foster plan, which devotes several paragraphs to the power and gas hub, says the LNG terminal will be approaching the end of its life cycle by the late 2020s.

But National Grid says it is in talks over a 300 million pound Isle of Grain expansion, which would include a massive new storage tank, a second cryogenic pipeline and a new jetty that would allow two LNG tankers to unload at the same time.

The grid company has applied to regulator Ofgem for an expansion of 8.4 bcm per year over 27 years starting from October 2016. Ofgem has said it is likely to grant 24 years, extending the terminal's life into the 2040s.

"Grain would enhance UK security of supply ... and we agree that the additional 8.4 bcm will increase flexibility as the demand for LNG increases," an Ofgem report says.

Even before National Grid's expansion plan, the Isle of Grain now has enough storage capacity to meet three days' worth of UK gas demand, important for safeguarding security of supply.

As for other facilities, the Isle of Grain is the connection point for the 1,000 megawatt (MW) BritNed undersea power cable between Britain and continental Europe.

German utility E.ON also opened a 500 million pound, 1,300 MW gas-fired power station there in 2010, which can supply around 1 million households. The mayor's submission says the 244-metre chimney of the Grain power station "would require special consideration".

E.ON did not comment on a potential closure of one of its newest facilities and only said it was "concentrating on it as an operational power station".

Airlines are not pushing for an Isle of Grain airport. Willie Walsh, who heads the parent company of British Airways, has expressed skepticism that any airport project in the Thames Estuary could raise financing.

The Isle of Grain is located within one of the busiest air spaces in Britain, aviation analyst Metcalfe said.

"It (a new airport) would sit right on the boundary of Amsterdam's very successful Schiphol airport," she said, which would make the safe management of crisscrossing air traffic from two major hubs difficult.

($1 = 0.6378 British pounds)

(editing by Jane Baird)

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