Scramble to reopen North Sea gas site to ease crisis
Business Secretary and Centrica are in talks over the revival of a mothballed North Sea site to secure winter fuel, reports Matt Oliver
BRITAIN’S largest natural gas storage facility is to be reopened within months to help ease the energy crisis under plans being discussed with Kwasi Kwarteng.
The mothballed Rough site under the North Sea could start receiving gas again before the onset of winter after its owner Centrica began talks with Mr Kwarteng, the Business Secretary.
Restarting the site would allow Britain to store 10 days of gas supply off the coast of east England, and would cost roughly £2bn.
Ministers are preparing for what is expected to be a difficult winter, amid fears that tensions between Russia and Europe over the war in Ukraine could prompt Moscow to switch off gas supplies to the Continent.
Rough has not been used for storage since 2017 but Centrica, the parent company of British Gas, has argued that it can be up and running again in months.
Talks are said to have been constructive so far but a key sticking point is how the scheme will be paid for, with the company claiming it will only be viable with state support.
It comes after Whitehall planners warned there could be gas shortages next winter in a “reasonable worst-case scenario” where Vladimir Putin cuts off Russian flows to Europe.
Under one modelled scenario first reported by The Times, electricity would need to be rationed to 6m homes in the morning and evenings.
Experts and Downing Street yesterday insisted gas shortages next winter remained a highly unlikely scenario.
Nevertheless, reopening Rough is one of several options ministers are considering to strengthen Britain’s energy supplies, as concerns grow that Russia could seek to weaponise Europe’s dependency on gas as the Ukraine conflict drags on.
Centrica is understood to be confident it could secure investment needed to reopen Rough but only if the Government agrees to provide regulatory support. Centrica shut Rough in 2017 because it had become too expensive to maintain without state support.
Previously, the facility had accounted for 70pc of Britain’s natural gas storage capacity.
Eighteen miles off the coast of Yorkshire, and more than a mile underneath the seabed, lies a gigantic sandstone reservoir where 70pc of the UK’S gas reserves were once held. The Rough field, in the North Sea basin, fulfilled this purpose for three decades before being closed in 2017 by Centrica, the parent company of British Gas.
Now, however, as Vladimir Putin’s threats to Europe’s gas supplies loom large, the ageing structure may be brought out of retirement with ministers trying to brace Britain’s energy system against disruptions.
It comes amid a backdrop of dire modelling in Whitehall, with officials warning of a “reasonable worst-case scenario” in which Putin could sever flows of Russian gas to the Continent, triggering major shortages.
In one extreme scenario – where Norway is forced to divert more supplies to the European mainland and there is huge competition for liquefied natural gas (LNG) – Britain’s supplies could be put under severe strain and the Government forced to implement electricity rationing.
Experts say the likelihood of this happening is very small, as the UK could afford to pay above the odds to secure what it needs in an emergency. But the warning underlines concerns about the strain on gas supplies and a resultant surge in wholesale prices and household energy bills.
In the race to secure Britain a critical winter gas reserve, Business Secretary Kwasi Kwarteng is understood to have held discussions with Centrica about reviving the mothballed Rough facility.
The Daily Telegraph understands that the talks, which remain at an early stage, have so far been constructive.
It would not be cheap, however. The project comes with a £2bn price tag and Centrica is demanding regulatory support, which could possibly include a guaranteed minimum subsidy.
The company previously closed Rough because it had become too expensive to maintain. At the time, some critics warned that allowing the facility to close would be a serious mistake, leaving Britain with only a clutch of smaller sites and making it more vulnerable to imports from abroad. Yet when asked by Centrica whether they were willing to help pay for keeping the facility open, the Government demurred, pointing to the UK’S plentiful supply of gas from other sources such as interconnectors with Europe and shipments of LNG.
That calculation may now be changing. Following the outbreak of the Ukraine war, European gas supplies are tighter than ever – having already been stretched by the surge in demand as the pandemic receded.
It has prompted some to wonder if closing Rough was the right decision after all. Meanwhile, the case for having more storage has been boosted by the unprecedented glut of LNG flowing into the UK in recent weeks and months, which has driven down prices. “If we had more gas storage, that would not be a problem,” one Whitehall insider told The Telegraph.
Reviving Rough would add enough storage to serve Britain’s typical gas needs for around 10 days. It would allow Centrica to hoover up gas in the summer at cheap prices and draw it down in the winter, helping to cushion the blow of price spikes.
Anise Ganbold, a researcher at Aurora Energy, says: “Russia typically provides quite low prices gas in the wintertime, when all of Europe is quite tight. Removing that relatively affordable Russian supply means that prices are going to be higher than previously, with more reliance on LNG for example. “If there is gas in storage, that provides another source of supply that can help ease tightness.”
Centrica’s case for reopening Rough emphasises the fact that it could be ready within a matter of months, not years – even by next winter, although not at full capacity. In the longer term, the company argues that Rough could be repurposed to store a blend of gas and hydrogen, or even eventually pure hydrogen, if that becomes a major future fuel source.
Bosses claim the scheme cannot be delivered without state support of some form. They have suggested that a regulatory mechanism, for example a “cap and floor” system, be used to guarantee backers get a return on their investment.
Centrica declined to comment. Analysts argue the business case for Rough remains exactly what its name suggests. Kathryn Porter, an energy consultant and founder of Watt-logic, points out that Centrica closed the facility in the first place because it was not commercially viable to maintain.
“Obviously today, people have been questioning whether that was actually the right decision,” she says.
“But a billion pounds is a lot of money to spend on something that you don’t then need for five years. And the capacity of Rough isn’t infinite. So the benefit that you’d get would be limited.
“You need to sit down and work out whether it actually makes sense.”
However, with time needed for gas producers to ramp up projects and get new supplies online in the coming years, gas storage facilities could still be useful, she adds, particularly in the wake of the Ukraine war.
“That, I think, has permanently changed the supply and demand dynamics, because now the West wants to exclude Russia from the gas markets. So we’re going to need new upstream projects to come online, in order to replace Russian gas and that takes time. “If you’re thinking that it could be sort of three, four, even five years before markets stabilise and you could probably get Rough back in a year, then that changes the equation.”
Tom Martin, a senior modeller at Cornwall Insight, argues the case for Rough simply boils down to whether the Government is prepared to take out an admittedly expensive “insurance policy”.
Ironically, having Rough already available today may have counterintuitively sent prices higher this summer as filling it up would have added to demand. Yet by extension, it could also have ensured prices would not be so high – and supplies not quite so tight in the coming winter.