Centrica Mulls Options for Rough Cushion Gas (Update)
(Adds comment from energy trade union at end)
The closure of UK's depleted gas field, the Rough storage site, will leave Centrica with a significant amount of cushion gas for sale. Unlike salt caverns, depleted fields need to keep cushion gas permanently in the reservoir to act as a spring to push the working gas out.
As Centrica Storage was ringfenced from its trading and other businesses, its options for accessing working gas were extremely limited and needed regulatory approval. But with the closure of the plant, this has changed. It told NGW that it expects, "subject to the necessary approvals and permissions from government and regulators," to be allowed to produce and sell the gas. However, "It’s too early at this stage to confirm the route to market," but it could be by auctions or directly on the spot market, it said.
Once it has been emptied of gas, then decommissioning would be the next step in the process. “Following the impairment charge recorded in the period, the current value of the Group’s gas storage fixed assets is £417mn ($530mn) (£112mn, net of the decommissioning provision and deferred tax)”, implying a current decommissioning provision of about £300mn," Centrica told NGW.
This is less than the value of the 5.2bn m³ of cushion gas, according to Wood Mackenzie in a report June 21. Author Graham Freedman said that at today's prices, "this has a value of $750mn plus in the UK market, which on a discounted cash flow calculation will return much higher income than maintaining the facility in place."
There is also the matter of UK security of supply. So far the government has preferred to let the market find solutions to this, and in a statement it said it was not concerned about that, or about high prices, and it had been prepared for the closure for a little while: “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.”
Observers such as the Oxford Institute of Energy Studies have said that the situation will be different when the UK is out of the European Union and can no longer count on support from other member states who might have surplus gas. Further, the UK's own gas supply is continuing to deplete.
On the other hand the UK has plenty of LNG import capacity and for this winter at least the UK-Belgium gas pipeline, Interconnector UK, will remain in operation, allowing shippers to sell to the UK gas that they are now injecting into continental storage sites.
Union concerned about Rough
The union for energy workers GMB expressed concern June 21 over Centrica's decision. Its gas reserves will be gone in the next four or five years, it said, raising "fears over the UK’s reliance on imports for its energy supply – concerns GMB has raised time and time again."
Its energy officer Stuart Fegan said: "We need to secure the UK’s gas powered energy supply – which provides 85% of heat to our homes. An announcement by the Department of Business, Energy and Industrial Strategy to invest £25mn into two projects to test whether hydrogen can help meet our carbon commitments under the Paris Treaty is welcome. But in the real world gas is going to be needed to heat our homes whilst we transition to a low-carbon economy.”
William Powell