Centrica Storage Ltd, owner of the UK’s largest gas storage site have announced its long term closure for further maintenance. The facility has been offline since June 2016 for gas injections into storage, and its restart has been delayed multiple times. The facility is able to supply 70% of the UK’s winter demand, however this is no longer the case.
Rough was closed temporarily last summer, as its ageing wells were in dire need of maintenance. Originally, all wells were to be repaired and returned to service by August 2016. 6 wells were closed completely, with a further announcement that there would be a delay in returning to operation. Upon further inspection, Rough was due to be ready to inject gas into storage from November but once again this was delayed to March. After a few more delays, we were finally informed that the facility will not be able to operate from April 2018. Naturally there was an immediate spike in gas prices following the latest announcement, where winter gas prices were much higher for 2018.
The UK will be very dependent on imported gas, either from Norway, continental Europe, or via LNG tanker contracts. Naturally the cost of gas will need to cover the cost of imports. Plus we must consider that colder countries during winter may win more contract for LNG, above the UK. It doesn’t necessarily mean that the UK will run out of gas, however the gap between supply and demand may grow much closer, and it will most likely mean that costs of gas will increase as we get closer to those colder months ahead.
Winter prices increased by around 10% upon the announcement. This is despite the UK now receiving more LNG tankers than seen throughout winter. However there is a general consensus that there will be a knock on effect into the power market, as the UK is generating around 50% of power supply from gas. This is a trend we have seen for some time, which is making the power market susceptible to movements within the gas market.
All in all, Rough Storage facility will be offline just like it was last winter. Centrica has plans to withdraw all gas from within the site over the next few months until it is completely empty, which isn’t particularly good news. The differing factor between last winter and next winter will be that there was a small amount of gas being withdrawn into the UK system from Rough. Whereas if it is emptied, we will not have that base to supply the grid. Reports have been suggesting that should a surplus of LNG arrive in the UK this winter, it will be pumped into storage for winter use. Alternatives to this have been that an extension at the Holford onshore gas storage facility will be used to withdraw and store gas, however this may not be in operation as soon as this winter.
Sources: Npower (RWE), EDF Energy, SSE, Gazprom, Centrica Storage Ltd, the Telegraph, the Energyst, Energy Live News