Last week was the announcement from Centrica that they plan to write off their plans for two gas storage facilities.
Over the last few years they have made acquisitions into numerous facilities. Further investments into Baird, near the Norfolk coast which is the same size as the current UK largest gas storage facility, Rough are to be scrapped.
This was blamed on ‘weak economics’, in Lehman’s terms. Energy companies traditionally buy gas and fill up their storage facilities in the summer on the dip in the market. They are then reliant on the winter price hikes where they then release and sell the gas with a significant profit. However in recent years, this margin has decreased with a global glut of gas.
Investment into UK gas storage facilities is pivotal. Earlier this year we saw record high prices throwing attention on a long-running problem. For the best part of a decade, the UK has been a net importer of natural gas. Imports account for around a third of our energy needs, due to the depleting North Sea reserves. Our current storage infrastruc¬ture, usually underground salt caverns or old offshore oil and gas fields, has not kept up with the changing energy situation with little to no expansion in capacity which has left the UK vulnerable to expo¬nential gas price hikes as seen in March this year.
Therefore with no government backing, in the form of subsides, it leaves energy companies with no incentive to invest in storage. The argument from the government is that that the subsidy will cause household prices to increase. Centrica argues that the investment will ensure price hikes won’t happen due to ample supply especially with demand set to increase over the long term.