UK decides against intervening to boost gas storage

LONDON Wed Sep 4, 2013 4:23pm BST

British Secretary of State for Energy and Climate Change Edward Davey speaks during the final day of the Oslo Energy Forum at the Holmenkollen Park Hotel in Oslo February 15, 2013, in this picture provided by NTB Scanpix. REUTERS/Fredrik Varfjell/NTB Scanpix

British Secretary of State for Energy and Climate Change Edward Davey speaks during the final day of the Oslo Energy Forum at the Holmenkollen Park Hotel in Oslo February 15, 2013, in this picture provided by NTB Scanpix.

Credit: Reuters/Fredrik Varfjell/NTB Scanpix

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LONDON (Reuters) - Britain decided on Wednesday against intervening in the energy market to boost gas storage capacity, saying that subsidising projects would be too expensive for taxpayers.

Gas stocks in Britain, Europe's biggest gas consumer, were near depletion last winter when a prolonged cold spell boosted demand.

At the time, the government commissioned a report to examine whether it needed to intervene to increase storage capacity after several companies, such as top domestic gas supplier Centrica, put unprofitable storage projects on hold.

Analysis published by the government on Wednesday showed that subsidising gas storage capacity would cost around 750 million pounds ($1.2 billion) over 10 years.

"Security of supply can be delivered more cheaply by the market ... It is up to industry to get on and invest in building gas storage," Energy Minister Michael Fallon said in a statement.

Options the government considered included obliging gas companies to secure a certain amount of supply, holding more gas in storage, and providing subsidies for new storage facilities, the government said.

"The analysis showed that this would not be cost-effective for the UK economy, with the cost of building new, subsidised storage or withholding gas from the market outweighing potential benefits to consumers," the energy ministry said in a statement.

Profits from running gas storage facilities in Britain have dropped in recent years due to the shrinking price differential between summer and winter gas prices.

Gas traders typically buy gas in summer when prices are low and sell it at a profit in winter, when higher demand lifts contracts, but that spread has now tightened.

Developers of gas storage sites said they were disappointed by the government decision, adding that some projects would be put on hold indefinitely as a consequence.

"We can safely say that our project will not be in a position to move forward in any significant way any time soon," said George Grant, chairman of Gateway Storage, which has planning permission to build one of Britain's largest storage facilities of 1.5 billion cubic metres.

Centrica said it was considering the effect the decision will have on two gas storage project under development.

In July the company said its Baird and Caythorpe gas storage projects might require support from the government to become profitable, because current market conditions were challenging.

Two storage facilities are currently under construction in Britain, at Stublach and Hill Top Farm in Cheshire, even though the latter has been plagued by delays.

(Editing by James Jukwey and Jane Baird)

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