The market conditions that will encourage the construction of new large-scale gas storage facilities are unlikely to exist in the foreseeable future, MPs have been told.
Roddy Monroe, chair of Gas Storage Operators Group, told the House of Commons Business, Energy and Industrial Strategy (BEIS) select committee yesterday (31 October) that only “small scale” facilities are likely to be delivered.
He was giving evidence to the committee, which is conducting a probe into concerns over the UK’s ability to cope with spikes in demand like that triggered by the “Beast from the East” cold snap earlier this year.
The worries have been heightened by Centrica’s decision in late 2017 to close its Rough facility, which accounted for around three-quarters of the UK’s total gas storage capacity.
In response to questioning by the committee on future investment in gas storage facilities, Monroe said: “The direction of travel is that capacity is leaving the market and not being added. I suspect if we are going to see any new gas storage it will be very small scale and I would be very, very surprised if we see any more seasonal storage.”
He said the chief barriers to new storage capacity coming forward are commercial and that returns from running such facilities would have to double to make it worthwhile to invest in new capacity.
Monroe added that revenues from storage facilities, which require high levels of capital investment over long periods of time, tended to be greater when gas prices are much more volatile than they look set to be.
“That hasn’t happened in the last ten years and I don’t see it happening going forward.”
But he expressed concern about the UK’s reliance on a combination of imported liquid natural gas, interconnectors from western Europe and its own North Sea supplies.
He said it is becoming increasingly difficult to increase production at short notice from the UK’s North Sea as the pressure in its rapidly exhausting gas fields drops.
“We have historically low levels of storage and reliance on the (North Sea) continental shelf is not working – the direction of travel is not a good one.”
Oliver Rix, partner in energy and resources at consultancy Baringa Partners said that a new Rough-sized facility might take eight to ten years to deliver, which could be costly.
Laura Cohen, chief executive of the British Ceramic Confederation, told the committee that the UK’s gas supply situation would have been much riskier if the “Beast” lasted a few days longer and wind speed had not been as strong.
And she warned that a repeat of last winter’s price rises were likely with the UK’s reliance on imported gas projected to rise to 80 per cent by 2030.
Cohen said that to secure a minimum level of gas storage a regulatory framework such as a statutory objective or investment incentive will be required.
Dan Monzani, director for energy security, networks and markets at the BEIS department, said the government had not been involved in the decision to close the Rough store which had been a commercial matter for its owner Centrica, driven by the failing condition of the ageing facility.
“Rough couldn’t safely function so it wasn’t an option,” he said.
Dave Buttery, the department’s deputy director for energy security, told the MPs that prices across the whole western European gas market had soared during early March’s cold snap, irrespective of the levels of storage in individual countries.
He said: “Having storage doesn’t necessarily protect in those extreme circumstances.”