Fears gas prices will rise as UK storage cut

UK gas suppliers could be forced to pay higher prices this winter after Centrica announced that capacity at Britain's biggest storage site would be cut sharply for six months, raising the possibility of higher consumer bills.

The energy group said that the Rough site, Britain's only so-called long-range storage facility lying two miles below the North Sea, would have to impose limits on the pressure in its wells due to doubts over their "integrity".

The decision means that the amount of gas that can be held in Rough will be cut from a maximum of 41.1 terawatt hours to between 29 TWh and 32 TWh, up to 29 per cent less than current levels.

Centrica said in a statement on Friday that, given the age of the field and installation, it had taken "the prudent step to test and verify the operating parameters of the Rough wells". It declined to elaborate further.

'This reduction in capacity will not be an issue over the coming months, the country has a diverse range of supplies," said the National Grid, the UK electricity distributor.

"National Grid will factor the reduction into its Winter Outlook and seek to understand what impact a long-term reduction might have."

The Rough gasfield lies 20 miles off the east Yorkshire coast. It was discovered in 1968 and since 1985 has been the UK's most important gas storage facility.

Two platforms control the flow of gas in and out of the field, which is two miles below the seabed. Thirty wells allow vast quantities of gas to be pumped out on cold days when demand is high, with gas pumped into the wells during milder days when demand is low.

According to National Grid, Rough alone makes up 72 per cent of the UK's existing gas storage capacity. Gas is usually injected into the site in the summer months to meet higher demand in the winter.

The decision highlights the UK's dependence on natural gas imports for its energy needs at times of peak demand. Though mild temperatures kept prices low this winter, some fear that Britain's gas storage is inadequate to meet its needs when consumption soars.

Trevor Sikorski of Energy Aspects, the consultancy, said the risk to supply for now was low and that pipeline connections with Norway, the Netherlands and Belgium meant that gas flows from the continent could be increased if domestic stocks fell short. But this could push up prices.

"Europe is fairly well stocked. It has a lot of gas storage facilities," he said. "The UK sticks out in that it doesn't have very much. Historically that's because we had a lot of North Sea fields, but as UK output has declined that has raised the question of whether you should build more.

"Extreme winter peaks will be met at higher prices," he added.

Centrica's announcement followed a brief statement earlier this month in which it identified a potential problem, news of which sent winter prices as much as 6 per cent higher. There was little market impact on Friday.

Britain can store as much as 4.3bn cubic metres of natural gas in eight storage facilities, substantially less than Europe's other big economies. Germany's maximum storage capacity is 22.6 bcm, France can store 15.5 bcm and Italy 15.6 bcm, according to Eurogas.

This means the UK can store gas equivalent to just 19 days of demand, according to a recent estimate by storage business Gateway. Germany, France and Italy have capacity to store an average of 97 days, although they have less domestic production.

In 2013 Centrica wrote off £240m in investment after cancelling plans to build two gas storage facilities in the UK. At the time it blamed the government's decision to rule out subsidies to boost storage.

The government has said the UK energy market functions well, attracting gas from a range of sources to meet current and future demand.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation