Centrica's gas storage project put on hold

CENTRICA is to shelve its Caythorpe gas storage project near Bridlington in East Yorkshire, blaming regulatory uncertainty for the decision.

The firm originally said "a significant number of jobs" would be created in the construction phase of the 200 million cubic metre site.

But it has now shelved the plans because of the threat of losing exclusive rights to the site.

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Centrica's finance director Nick Luff said: "We had been led to believe that we would get an exemption on third-party access rules but more recently Ofgem have told us they are minded to consult on that.

"As a result of the regulatory uncertainty this creates for the project, we have decided not to proceed at the current time."

Caythorpe had been given planning permission to convert to onshore gas storage and Centrica had hoped the plant would be up and running by early 2012.

Centrica also owns Britain's biggest gas storage site Rough, which is offshore from Easington in East Yorkshire.

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Rough has played a key role in topping up the nation's winter gas supplies with gas bought in summer, when demand is low and prices are much cheaper. Rough currently holds 80 per cent of Britain's national storage.

But the increasing role of liquefied natural gas in meeting gas supply needs has reduced the seasonality of UK gas prices.

"The differential between summer and winter gas prices has narrowed significantly, currently impacting both the level of underlying returns achievable from the Rough facility and also the economics of our three potential new gas storage projects," Centrica said.

It will make a decision on whether to go ahead with its two other potential storage projects, Baird in the North Sea and Bains in the Irish Sea, next year.