Gas storage facility still not up and running ahead of winter

Centrica rough gas storage
Centrica rough gas storage

The Rough gas storage site is set to make a minimal contribution to Britain’s energy security this winter, as talks drag on between its owners and the Government over a long-term funding deal.

Chancellor Kwasi Kwarteng opened talks with the FTSE 100 company Centrica in late spring when Mr Kwarteng was the then business secretary over re-opening the North Sea cavern this winter amid a scramble to bolster energy supplies amid Russia’s war on Ukraine.

Chris O’Shea, chief executive of Centrica, said earlier this year the site could be restored in time for winter, albeit at well below full capacity with plans to significantly increase its capacity next winter as part of a phased approach.

However, the site is yet to get up and running and has not been factored into National Grid’s winter outlook for gas supplies, amid expectations it could at most supply less than one percent of peak demand this winter.

After getting regulatory approvals to re-open at the end of summer, Centrica has started to inject gas for testing and cushion gas. However, it is believed the most it will be able to withdraw on any given day will be in the single digit million cubic metres.

At full capacity before its closure in 2017, Rough, which is about 18 miles east off the coast of Yorkshire, could store enough gas to meet winter demand for approximately ten days. It accounted for about 70pc of the UK’s storage capacity.

Centrica is believed to still be in talks with ministers over some form of long-term taxpayer support for the site. The company hopes to eventually use it to store hydrogen, with demand for the fuel growing due to efforts to cut carbon emissions.

Government support could take the form of funding for Centrica if prices for gas from the site are low, but it would not get to keep the upside if prices are high. This approach has been used to help develop offshore wind.

The Government has previously resisted funding gas storage sites, relying on the market to deliver what is needed. A Whitehall source said talks were “continuing” and they were “optimistic” about a deal soon.

Ministers are also facing calls to impose further windfall taxes on oil and gas producers and on electricity generators, who are making high profits amid scarcity, rather than subsidise them. Centrica produces gas from the North Sea and also owns a 20pc stake in Britain’s nuclear fleet.

While Rough may be of little help this winter, industry executives have highlighted the severe threats to supplies next winter when gas stocks will need to be refilled with even less Russian gas than they had this year.

“Government may have underestimated that a bit,” said an industry source.

The closure of gas storage facilities has left the UK more reliant on the global gas market, which has been thrown into chaos by cuts in Russian gas supplies to Europe as Moscow weaponizes fuel.

With little storage of its own, Britain has been exporting record amounts of gas to Europe over the past few months as countries on the continent try to fill up their storage tanks ahead of winter.

However, the UK typically needs to buy gas back from Europe in the colder months. There is no guarantee it can do this, if supplies on the continent run short.

In a winter outlook on Thursday, National Grid warned that any shortfall of gas supplies in Europe could “affect Britain’s ability to attract imports, should they be required”.

National Grid’s electricity system operator warned of rolling blackouts this winter if Britain cannot secure enough gas to run gas-fired power stations, nor enough electricity imports. Areas could be cut off at different times on a rota to prevent the system from collapsing.

Households and businesses are being offered payments to cut their demand if needed at short notice to help balance the system, such as by running washing machines at night or shifting production hours.

Rolling blackouts are a worst case scenario. However, some analysts yesterday challenged National Grid’s “base case” in which Britain has plenty of electricity supply to get through winter.

Kathryn Porter, at consultancy Watt-Logic, questioned assumptions made over the availability of wind power. “They should be looking at what generation is available on average during a cold spell, not what generation is available on average during the year,” she said.

Ian Radley, director of gas systems operations, says in its outlook report: “GB benefits from access to a range of diverse and flexible sources of gas.”