June 20, 2017 / 8:13 AM / 2 years ago

Centrica to shut UK's giant Rough gas storage site

(Reuters) - Britain’s biggest natural gas storage site under the North Sea will be permanently shut by operator Centrica following repeated outages as failing wells prevent the facility’s safe restart, Centrica said on Tuesday.

At over 30 years old, the Rough facility accounts for about 70 percent of UK storage capacity and a lack of new-build to replace it will increase dependency on imports over the next few years, boosting wholesale gas market volatility and prices, analysts and traders said.

Seasonal gas storage provides security and flexibility of supply. At times of low demand and therefore low gas prices in the summer, gas is injected into storage to be kept for when demand rises in the winter.

Rough could cover a tenth of Britain’s peak winter demand.

“Due to the age and condition of Rough we can no longer safely inject gas into the reservoir and build up the pressure in the well,” a Centrica spokesman said.

Falling demand for gas storage facilities would have forced Centrica to close Rough regardless of the investment needed to refurbish its ageing wells, he added.

European utilities are losing billions of euros from gas storage facilities, triggering site closures and divestments in a market suffering from oversupply and weak demand.

In a statement, Centrica said it intends to file applications to permanently end Rough’s status as a storage facility but aims to produce all recoverable gas from the field, which is estimated at 183 billion cubic feet (bcf).

Selling off the so-called cushion gas, used to maintain minimum reservoir pressure for the site to operate, would likely take several years, a Centrica spokesman said.

Centrica is assessing how much gas could be available for sale.

Concerns about the integrity of wells at the site prompted Centrica in April to put off any further gas injections until at least April 2018.

Without Rough, Britain would be more vulnerable to winter price shocks. Wholesale prices would have to rise to attract more gas from Norway, Europe or liquefied natural gas (LNG) suppliers, with a knock-on effect on consumer prices.

“The market will be more exposed to international price fluctuations as more imports will be required to balance Britain’s gas market when cold,” Katrina Oldham, an energy trader at Inenco.

Energy Aspects analyst Trevor Sikorski said the shutdown of Rough would lift British wholesale gas prices above continental gas hubs in winter and make them trade at a discount in summer, given that demand for injecting gas into storage would be less in summer months without Rough.

The effects could be compounded by potential changes to energy supply terms with EU countries if Britain leaves the internal energy market when it quits the European Union.

Britain has seven other gas storage sites but they offer shorter injection and withdrawal times and less stock.

Other storage operators are also struggling to cover their capital costs due to unfavorable market returns. In 2015, utility SSE decided to mothball a third of the withdrawal capacity at its Hornsea site.

Reporting by Arathy S Nair in Bengaluru, Oleg Vukmanovic and Susanna Twidale in London,; editing by Jason Neely and David Evans

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