Centrica Storage Ltd (CSL) announced in June 2017 that their largest offshore gas storage facility ‘Rough’ would be permanently closed, after experiencing a year of issues while under repair and maintenance. The aging facility has been incapable of performing injection activity since June 2016, and as a result has not managed to store much gas, while withdrawals have been significantly lower than usual. CSL confirmed that the facility iss no longer economic to run due to the extent and cost of repairs required.
While there had been a slight blip in the market, the announcement has not had much of an impact on gas price. National Grid published their Winter Consultation this year with the idea in mind that Rough would be out of operation, and it seems a lot of traders have had the same view in mind. While price may not be much of an issue, many reports suggest that the gap between supply and demand will be very short for the next few winter seasons in the UK.
Reports suggest that the gas reserves remaining inside Rough will be withdrawn steadily over the next three to four winters, though withdrawal will be low. Stored gas making its way into UK energy supply has been steadily falling over the last five years, and though the loss of Rough will have a large impact on price, its decline has made way to imported gas from Norway via interconnectors and from Qatar in the form Liquefied Natural Gas.
While the UK has increased imported gas, the cost of this is slightly higher than UK owned gas. Plus, contracts from Qatar for LNG can vary. Only last winter, the UK did not manage to win as many LNG tanker contracts because colder European countries were in more need of gas supply.
And the cost of imported gas from Norway is changeable due to £GBP volatility against a variety of other currencies. The future of gas supply is uncertain due to all of these factors. However, the trend of gas price in heavily influential on the power market as the UK generates around 50% of daily power supply from gas-fired generators. The coming winter may end up in a tight supply system for both gas and power.
Sources: the Guardian, Bloomberg, Npower, Reuters, Energy Live News, National Grid, Centrica Storage Ltd