Gas store setback for energy security plans

A Centrica gas rig off the north west coast of EnglandA Centrica gas rig off the north west coast of England
A Centrica gas rig off the north west coast of England
BRITISH Gas owner Centrica has dealt a blow to Britain’s energy security plans by shelving two huge gas storage projects, including one in Yorkshire, at a cost of £240m.

The energy giant blamed the Government’s decision not to subsidise new gas storage and “weak economics” for axing the projects in East Yorkshire and the North Sea.

The decision will leave the UK increasingly reliant on imported gas, with only around 15 days of gas supply in storage.

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In March the prolonged cold spell saw Britain’s stored gas supplies fall dangerously low, with warnings of supply interruptions. The UK also relies on North Sea gas, pipelines from Europe and shipments of liquid gas.

Centrica axed its planned £1.5bn conversion of the Baird depleted gas field in the southern North Sea off the North Norfolk coast, which would have held enough gas to meet 13.5 days of peak demand. The project was expected to create more than 1,000 construction jobs.

It would have become Britain’s second-biggest gas storage site behind Centrica’s Rough facility off the coast of East Yorkshire, which can meet 15 days of peak demand.

And it also put on hold indefinitely its much smaller project to convert a depleted gas field at Caythorpe in East Yorkshire into a storage facility.

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Centrica said: “This decision was taken in light of weak economics for storage projects and the announcement by the UK Government on September 4 ruling out intervention in the market to encourage additional gas storage capacity to be built.”

Centrica commissioned two reports on gas storage, which found subsidising it would have added 40p to 80p a year to customers’ bills over 25 years.

Energy minister Michael Fallon argued that the decision not to subsidise gas will save consumers £750m over a decade.

When it announced the decision, the energy department said gas supply was “resilient, with supplies outstripping demand”, adding that the UK has coped well with extreme weather conditions, including the freezing March.

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Centrica, which is thought to be planning a price hike, will write off money spent on buying Caythorpe and 70 per cent of Baird, as well as engineering costs, resulting in £240m of impairments and provisions.

The projects relied on being able to buy gas cheaply in the summer when demand is low, and selling it for a profit during the winter when demand soars. Centrica’s decision was influenced by the narrowing difference between summer and winter prices.

A spokesman said: “We believe there’s still a need for new gas storage capacity in the UK but unfortunately market conditions now do not make that investment possible for us.”

Centrica is also reportedly planning to add an average £100 to annual bills, despite vowing earlier this year to use an earnings windfall from the cold weather to keep a lid on tariffs.

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Earlier this year Centrica pulled out of plans to build the next generation of new nuclear power plants in the UK, leaving French utility EDF to go it alone. With wrangling over subsidies for new nuclear dragging on, it blamed “uncertain project costs” and return £500m to shareholders.

The Department of Energy and Climate Change insists the market can provide new gas storage capacity without subsidy.