Largest Gas Storage Site Closes – Gas Price Volatility to Rise!
Back in June Centrica, British Gas’s owner made a move to permanently close the Rough facility just off the Yorkshire coast. This followed a temporary closure due to safety fears, on further review the facility was deemed unsafe and uneconomic to reopen.
The test of the wells at the facility came back conclusively that the facility had come to an end of its design life, and unfortunately, it just isn’t economically feasible to rebuild and refurbish. Centrica has said however that the cost of closure should be neutral when balanced with the value of the gas remaining in the wells.
Centrica has said that Rough, which has been open since 1985 and held around nine days of gas supply, will close its doors as the UK’s largest gas storage centre once it has sold off its remaining reserves. This is estimated at around four to five years.
Barclays analysts have said that when the currently largest gas storage site closes it will cause an increase in the volatility of wholesale energy prices, this is a view shared by Matthew Bogle, the Senior Energy Analyst at Black Sheep Utilities.
“With the existing Rough stock availability likely to remain for several years but depleting in its stock, and the increase of external imports of Liquefied Natural Gas. Customers are taking advantage of current low stock fixed prices for an average minimum of 3 years, often fixing for 5 years to avoid the volatile stock prices that could be heading our way this winter” – Matthew Bogle
At over 30 years old, the Rough facility has accounted for about 70 % of UK storage capacity and a lack of new-build to replace it will increase dependency on LNG imports from Europe and other imports over the coming years, boosting wholesale gas market volatility and prices
As the UK’s largest gas storage site closes, the UK’s seasonal gas storage security and flexibility is impacted. At times of low demand and low gas prices in the summer, gas is injected into storage to be kept for when demand rises in the winter. With Rough covering a tenth of Britain’s peak winter demand. Britain does have seven other gas storage sites but these offer shorter injection and withdrawal times and less stock availability.
It comes as no surprise that Centrica has decided to close their doors, as LNG from Qatar have drastically reduced the economic rationale for the facility. The Qatari LNG imports however could prove a political risk, as the diplomatic crisis in the Gulf continues. Thankfully at present, there is no evidence that Saudi Arabia, the UAE, Bahrain and Egypt’s decision to sever ties to Qatar has interrupted supplies to the UK.