Centrica to cease storage operations at Rough

Centrica has announced that it is to permanently end Rough’s status as a storage facility and to produce all recoverable cushion gas from the field, which is estimated at 183bn cf. The company first announced plans to assess the future pathway for Rough’s commercial operations in early April and has now concluded that, ‘as a result of the high operating pressures involved and the fact that the wells and facilities are at the end of their design life and have suffered a number of different failure modes while testing’… the assets and facilities ‘cannot be returned to injection and storage operations’. Furthermore, the company notes that ‘from a commercial perspective, an assessment of both the economics of seasonal storage today, and the costs of refurbishment or rebuilding the facility and replacing the wells, suggests that both pathways would not be economic’.

Rough has made up 70% of all UK gas storage, able to hold nine days’ worth of UK gas demand, and throughout its service has been able to supply 10% of peak gas demand predominantly in the very cold months of winter. The short-term solution for the UK will be to increase gas imports, mostly via ship, from places such as Qatar. However, this not only has a negative economic impact for the UK and consequences for global emissions, but is also politically risky when it comes to ensuring the nation’s security of supply.

Commenting on the news, Ken Cronin, Chief Executive of UKOOG, said: ‘The solution for the UK in the medium term cannot be to transport gas across oceans and continents. The UK needs to ensure that whatever gas replaces that from Rough comes from sources that can deliver the same high levels of environmental and regulatory standards. Only the development of the UK’s onshore resources just a mile under our feet can do this, simultaneously maximising the employment and economic benefits that come with producing our energy at home.’

Meanwhile, Greenpeace Head of Energy, Hannah Martin, said: ‘The abrupt closure of the Rough gas storage facility and the possible worry over gas availability that follows, illustrates that our energy mix could benefit from reduced reliance on fossil fuels. We know we need to cut carbon emissions to meet our climate targets anyway, so instead of perpetuating our high dependence on gas, the government should lead on a robust energy efficiency programme, that is properly planned, delivered and monitored.’

The 183bn cf (5.2bn cm) of cushion gas which sits in Rough, enabling it to operate at a high pressure has significant residual value. Wood Mackenzie’s Graham Freedman, Principal Analyst, European Gas and Power, says: ‘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. Whilst we would not expect this all to be delivered to the market in one winter, we would expect it to operate like any other depleting gas field reducing production year-on-year until fully depleted. Dependent on Centrica gaining full regulatory approval in time, Rough might deliver gas to the UK market for the next few winters as if it were operating as a normal storage facility, but clearly in depleting mode.’

In other news, Centrica has also agreed to sell its operational Langage and South Humber Bank combined cycle gas turbine (CCGT) power stations, with a combined capacity of 2.3 GW, to EP UK Investments (EPUK) for £318mn in cash. EPUK’s ultimate parent company, EPH, is Europe’s seventh largest power generator and owns the Eggborough and Lynemouth power stations in the UK. The transaction is consistent with Centrica’s stated strategy to shift investment towards its customer facing businesses and to seek opportunities in flexible peaking units, energy storage and distributed generation whilst reducing focus on large-scale central power generation. 

In December 2016 Centrica was awarded Capacity Market agreements for two fast-response gas peaking plants at Brigg and Peterborough, and a battery storage facility in Cumbria. Including the 370 MW CCGT project at King’s Lynn A, Centrica is investing £180mn in new flexible energy storage and gas-fired generation capacity.