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Closure of biggest gas storage site will create price spikes in winter
Centrica’s decision to close the Rough gas storage site could lead to more volatile pricing, particularly in the winter.
The North Sea gas storage facility accounts for around 70 per cent of the UK’s storage capacity but the site will close permanently following safety concerns last week.
British Gas owner Centrica says the offshore plant, which can hold about nine days’ worth of gas supply, has come to the end of its design life and would be ‘uneconomical’ to recommission.
Experts believe that closing the storage facility will lead to more sharp price spikes affecting the market. And will mean that the UK will have to rely on imports from countries such as Norway and Qatar.
Gas storage facilities like Rough can provide short term energy stability. Extra supplies can be released to address temporary spikes in demand or dips in supply from North Sea fields and imports.
Industry analysts believe that the decision to close Rough will cause more uncertainty about supply and cause prices to spike during winter months.
The effect is not expected to be immediate. Centrica announced that the site will be permanently closed only when recoverable supplies are used up, which could take years.
Other experts warned that the UK could be forced to increase their reliance on Qatari LNG imports.
With diplomatic instability hanging over Qatar’s relationships with its neighbours, this could create further supply complications in the future. For now, however, there is no evidence that the political instability has interrupted UK supplies.
The department for Business, energy and Industrial Strategy (BEIS) appears to have signalled a long-term shift away from sources of gas.
This week, the government announced two new projects that could help wean the UK off natural gas for heating.
BEIS said a £25m testing pot would be made available to understand how hydrogen could be used to cut greenhouse gas emissions arising from heat. A further £10m is being invested in “smart heating”.
The energy regulator OFGEM could add to winter price uncertainty, however, with its decision to cut £370m worth of payments to small power producers such as diesel farms and small gas plants.
The regulator said that the payments for generators supplying power at peak times were distorting the market and warned that the situation was about to get worse.
Experts warned that this would push up costs for flexible consumers by making prices spikier during times of high demand.