The government was not prepared to see British Steel turn off its furnaces, deeming them to be a critical asset for national security. So what is its security view on the UK’s capacity to store gas? In a time of trade wars, disrupted supply chains and suspected Russian sabotage in the Baltic Sea, are ministers happy for the country to go into next winter with only half the volume of stored gas of recent years?
The question was raised here a couple of months ago and is becoming urgent because Centrica, the owner of the Rough facility off the coast of Yorkshire that makes up half the UK’s gas storage capacity, this week quietly stopped refilling the site. The company cannot see a way to make a profit.
The development may surprise those who remember the fanfare as recently as 2022 when the British Gas owner partly reopened Rough soon after Russia’s invasion of Ukraine. The difference is that the volatility in the gas market in 2022 and 2023 suited the economics of storage, which rely on a wide spread between summer and winter prices. In today’s lower-volatility climate for gas prices, it is harder to make the numbers work.
Rough is expected to make an annual operating loss of between £50m and £100m, Chris O’Shea, Centrica’s chief executive said at a City presentation in December, giving a strong hint he would shut Rough unless a financial deal could be agreed with government. “Making material losses is not something that is either sustainable or will be sustained by us,” he said. Now, at the time of the year when injections into Rough would normally start, Centrica is not refilling, Bloomberg reported.
One could take the view that Centrica is merely ratcheting up the tension in the negotiations with the government. Talks were confirmed in February to try to keep Rough open. The company has said it would invest £2bn to expand capacity with an eye on an eventual switch to storing hydrogen to serve the cluster of heavy industries around Humberside. It is seeking a “cap and floor” arrangement whereby it would get a guaranteed return, and profits above a determined level would be used to trim consumers’ bills.
But an alternative reading seems equally plausible: the government may not see Rough as a critical piece of national infrastructure. After all, the facility was closed between 2017 and 2022, and the UK coped even during the “beast from the east” episode of plunging temperatures in 2018. The traditional view in regulatory circles is that, even though the UK now imports half its gas (mostly for domestic use), real security lies in being able to get hold off the stuff in a hurry. On that front, the UK has a pipeline from Norway and terminals to import gas in liquified natural gas form, usually from the US and Qatar. Ed Miliband, the energy secretary, echoed such points to parliament in January when he said the UK had “a diverse range of sources” and, while proposals would be kept “under review”, there would be “inevitable costs” to increasing storage capacity.
It is true that none of these projects are cheap – just as nationalising British Steel will not be. But gas reserves are really a form of strategic insurance against geopolitical risks, supply shocks and price increases – factors normally rolled out in support of more renewables. The UK already has among the lowest amount of gas storage of major European countries, comprising 12 average days’ demand or 7.5 peak winter days. Cut those numbers in half if Rough goes offline.
Would that be enough if, say, LNG flows from the US become entangled in Trump’s trade war? Or if a boycott of Russian gas were to be fully enforced in European markets? And the nightmarish scenario, say defence and energy experts, would be interruption in the dead of winter to the Langeled pipeline from Norway, possibly the most critical piece in the UK’s energy network. Just-in-time deliveries are great until they don’t arrive, or you have to pay over-the-top prices.
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There is little point berating Centrica for not doing its national duty. The company may sometimes portray itself as a UK energy champion but it can’t be forced to fund a loss-making asset indefinitely. Ensuring energy security is the job of the government. Negotiations may be about to be completed happily, in which case we can relax. But if the government thinks we can live without Rough in a riskier world, it should set out its reasons. Six days of gas reserves does not sound much.
