The closure of the UK’s largest gas storage plant has prompted warnings that the country faces more volatile winter gas prices and is becoming too dependent on energy imports.
British Gas’s owner, Centrica, said it was permanently closing the Rough facility off the Yorkshire coast because it had become unsafe and uneconomic to reopen the facility, which had been temporarily shut over safety fears.
The loss comes on top of the diplomatic crisis in Qatar, which supplies a third of UK gas imports and has highlighted the UK’s increasing reliance on hydrocarbon imports.
Centrica said Rough, which opened in 1985 and could hold about nine days’ gas supply, will cease to be a storage facility once its remaining gas reserves have been sold over the next four to five years.
The company said tests of the wells at the facility showed it had come to the end of its design life. Rebuilding or refurbishing Rough would not be economical, the firm added, though the cost of closure is expected to be broadly neutral because of the value of the remaining gas.
Experts said it was no surprise Centrica had decided to shutter the depot, because liquefied natural gas (LNG) imports from Qatar had significantly reduced the economic rationale for this kind of facility.
Analysts at Barclays said the closure would increase the volatility of winter gas prices, a view shared by other industry-watchers. Matt Osborne, a risk manager at energy consultancy Inenco, said: “We anticipate that the decision to close Rough will create uncertainty in terms of energy pricing.
“Though we haven’t seen a material impact on prices yet – most probably because there is still a significant amount of recoverable gas in the field, which could last for years – the pressure could come in the winter months, especially if we experience very cold conditions.”
The fracking industry said the closure would increase the UK’s reliance on Qatari LNG imports, which it said had proved to be politically risky, although there is no evidence yet that the diplomatic crisis engulfing the Gulf state, whose neighbours have severed diplomatic ties, has interrupted UK supplies.
Ken Cronin, the chief executive of the onshore gas and oil industry trade body UKOOG, said: “The solution for the UK in the medium term cannot be to transport gas across oceans and continents. The UK needs to ensure that whatever gas replaces that from Rough comes from sources that can deliver the same high levels of environmental and regulatory standards.”
Gas has become increasingly important in the UK’s power mix as coal plants close and renewables grow, and also provides heating for about 80% of UK homes.
A Department for Business, Energy and Industrial Strategy (BEIS) spokesperson said: “The UK has highly diverse and flexible sources of gas supply through domestic production and extensive import capability. We expect healthy margins this winter as we continue to upgrade the UK’s energy infrastructure.”
On Tuesday, the government announced funding for two projects that could help wean the UK off its reliance on natural gas for heating.
BEIS said £25m would be made available to test using hydrogen to cut greenhouse gas emissions from heat. The money will fund research into whether existing gas pipes can be used for hydrogen, and what impact having a hydrogen boiler would have for consumers. A further £10m is being invested in “smart heating”.
Unlike gas, hydrogen produces no emissions when burned, although it is only considered a green fuel if produced with renewable power.
The newly appointed energy minister, Claire Perry, said: “The UK government is committed to leading the world in delivering clean energy technology and today’s investment shows that we are prepared to support innovation in this critical area.”
The UK energy regulator has drastically cut £370m of payments for small power producers, in a blow to diesel generators and smaller gas plants.
The decision by Ofgem sparked strong criticism, with claims the move would fail to achieve its aim of saving consumers about £20 a year on their energy bills.
Ofgem said it would reduce payments for small generators from 2018, in what observers said was a victory for lobbying by the big six energy companies – British Gas, EDF, E.ON, Npower, Scottish Power and SSE.
The regulator argued that the payments for generators supplying power at peak times were distorting the market and set to get worse.
“Our role is to protect customers and make sure costs are kept as low as possible. That is why we are taking action by reducing this payment,” said the Ofgem chief executive, Dermot Nolan.
However, the Flexible Generation Group, which represents small generators, mostly gas plants, said the decision would inevitably push up costs to consumers by making prices spikier at times of high demand.
Mark Draper, the group’s chairman, said: “This decision poses a significant challenge to our growing industry and makes it even more difficult for new entrants into the energy market to compete with established players.”
He added the decision would reinforce the perception that big power producers wield “undue influence” with Ofgem.