LONDON (Reuters) - Britain is set to lose its largest natural gas storage site, increasing the country’s reliance on imported energy, after British Gas owner Centrica (CNA.L), said it would close its ageing Rough facility.
Wholesale gas prices will become more volatile and more vulnerable to price spikes, analysts and traders said.
Britain already imports around half of its gas from Norway, continental Europe, and from Qatar in the form of liquefied natural gas (LNG).
This figure is expected to rise as its own supplies from the UK Continental Shelf decline.
And if Britain cannot call on stored reserves when demand rises in winter, it will need to import even more. Rough covered a tenth of Britain’s peak winter demand.
“The loss of Rough will create uncertainty, volatility and leave (Britain) exposed,” said Wayne Bryan, an analyst at consultancy Alfa Energy.
“If we experience a 2-3 week cold snap, the loss of Rough will see us reliant on imports, namely LNG,” Bryan said.
Storage provides security and flexibility of supply. Gas injected in the summer at times of low demand and low prices is there to meet demand when consumption rises in the winter.
With the closure of Rough, Britain loses about 70 percent of its storage capacity.
“The market will be more exposed to international price fluctuations as more imports will be required to balance Britain’s gas market when cold,” said Katrina Oldham, an energy trader at Inenco.
Reflecting the British market’s vulnerability to imports, prices for July gas jumped earlier this month after doubts were raised about delivery of two Qatari LNG cargoes.
The two tankers eventually declared they would come to Britain, but via a different route, sending prices back down.
More than 30 years old, tests at Rough off England’s east coast revealed concerns about the integrity of its wells.
As a precaution, Centrica last year imposed limits on how much gas could be stored there, but the company said on Tuesday the safety issues meant it must close permanently.
However, Centrica, which through British Gas is Britain’s biggest home energy supplier, said it aims to produce all recoverable gas from the field, which is estimated at 183 billion cubic feet (bcf)..
Selling off the so-called cushion gas, used to maintain minimum reservoir pressure for the site to operate, will likely take several years, a Centrica spokesman said.
Falling demand for gas storage would have forced Centrica to close Rough even if the company had not faced investment to fix its ageing wells, he added.
European utilities are losing billions of euros on gas storage, triggering site closures and divestments in a market suffering from oversupply and weak demand.
In 2015, utility SSE (SSE.L) announced it would mothball a third of the withdrawal capacity at its Hornsea site.
Britain has seven smaller gas storage sites but these offer shorter injection and withdrawal times.
Additional reporting by Arathy S Nair in Bengaluru; editing by Jason Neely and David Evans