Centrica’s £20bn Deal with Equinor Includes Key Clause for Future Hydrogen Shift

Centrica has signed a £20 billion agreement with Norway’s state-owned energy company, Equinor, to secure a decade-long supply of natural gas. What’s particularly notable about this deal is a forward-looking clause: in the future, some of that gas could be replaced with hydrogen. Centrica has been sourcing gas from Equinor since 2005, and this new agreement locks in five billion cubic metres of supply each year.

Equinor isn’t new to the UK energy scene. It’s been supplying gas to the UK for over 45 years. But its role has grown even more critical recently. As the UK moves to phase out Russian energy imports, it has become increasingly reliant on Norway. In 2022, about one-third of the UK’s imported gas came from Norway. By 2024, that figure had jumped to half, according to official government statistics.

The UK, despite being home to North Sea reserves, is a net importer of oil and gas. That’s mainly because these fuels are globally traded, and much of what’s extracted in UK waters is sold abroad. Meanwhile, domestic demand remains high, especially for heating and transport. At the same time, the UK’s North Sea reserves are in gradual decline.

One of the standout features of the new Centrica-Equinor deal is the hydrogen clause. For the first time, Equinor is allowed to meet some of its supply commitments with hydrogen, as long as it’s produced at projects planned for the UK.

Equinor views itself as a key player in helping the UK achieve its goal of 10 GW of low-carbon hydrogen production by 2030. The company is involved in several UK-based hydrogen initiatives that could become operational within the next decade.

Centrica’s Group CEO, Chris O’Shea, said the deal not only secures energy supply for the UK but also helps lay the groundwork for a growing hydrogen market.

Last year, Centrica, Equinor, and SSE Thermal announced plans for the Humber Hydrogen Hub. This cluster of projects, located on the north bank of the Humber Estuary, is central to their hydrogen ambitions. Together, they aim to build up to 1 GW of green hydrogen and 1.2 GW of blue hydrogen capacity in the 2030s under the H2H Easington project.

Green hydrogen is created by splitting water into hydrogen and oxygen using renewable electricity. Blue hydrogen, on the other hand, is made from natural gas, with a portion of its emissions captured through carbon capture technologies.

Centrica is also pushing for greater investment in hydrogen storage. It’s currently seeking government approval to redevelop the Rough gas storage facility for a hydrogen-ready future. Rough currently accounts for around half of the UK’s gas storage capacity.

The UK’s official climate advisors have stressed that hydrogen should be prioritised in sectors that are difficult to electrify rather than for home heating or everyday transport.

Still, gas companies are lobbying for hydrogen to play a role in home heating as they seek to adapt their business models in the era of net zero. Under Rishi Sunak, the government supported the blending of hydrogen into the gas grid at levels of up to 20%. Still, it indicated that the widespread use of 100% hydrogen would likely be limited. Kier Starmer’s government is expected to make a final decision on hydrogen’s role in heating by the end of 2025.