RE: FT article - Breakdown in gas storage talks with Centrica5 Feb 2023 23:17
The UK will be vulnerable to gas shortages and high energy prices next winter as the government and Centrica fail to reach an agreement on expanding Britain’s largest gas storage facility, energy experts and MPs warn.
Centrica, which owns British Gas, partially reopened the Rough gas storage facility off the Yorkshire coast at the government’s request last October – five years after it was closed to new injections. But the site is only operating at a fifth of its former capacity.
The company had been lobbying the Government for consumer-funded minimum revenue guarantees it needs if it is to invest the £150million needed to double Rough’s capacity to 60 billion cubic feet by next winter.
Talks between the government and Centrica over the new funding mechanism have stalled in recent weeks, and Centrica has warned it will not be able to expand capacity in time for next winter.
Dieter Helm, an economics professor at Oxford University and a former government energy adviser, said the UK has failed to develop its gas storage facilities with the “urgency that is now required”.
“Storage is part of security of supply and a public good, but the market alone will not deliver. Relying on LNG tankers on the high seas has a price, which explains why the UK has been hit so hard by rising gas prices despite importing so little from Russia.”
A pro-government source said “Centrica is too greedy,” adding that discussions have become increasingly heated and acrimonious.
“They were unable to get the additional facilities up and running in time for next winter and the supply shortages have eased; the government just left,” the source added.
The lack of gas storage facilities may contribute to rising energy bills as the UK relies on LNG imports in winter when costs are higher, a problem that has become particularly critical since Russia invaded Ukraine.
Michael Bradshaw, professor of global energy at Warwick Business School, said that “the lack of storage capacity in the UK is putting customers at risk of security of supply next winter”.
“This leaves the UK dependent on attracting LNG cargoes in the winter months when prices tend to be high and competition greater. a situation exacerbated by the lack of firm long-term contracts that would guarantee deliveries to UK terminals.”
Centrica said in October that the UK’s nine days of gas storage at 89 days are well behind Germany, France at 103 days and the Netherlands at 123 days.
A Centrica spokesman said, “Talks are not yet advanced, but the door is always open.”
“We’ve done as much as we can, but this is a long-term strategic decision and to do more we need a regulated model so that it underpins the investment for years to come,” he said.
The Department of Business, Energy and Industrial Strategy said it was “a Centrica thing.”
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