‘We can’t take energy security for granted’: UK races to boost gas storage capacity

On the outskirts of Easington, a small coastal village in east Yorkshire in the north of England, a loud, prolonged whirr this week heralded a significant moment in the UK’s push to strengthen its energy security.

At the Easington gas terminal, the sound of compressors starting up signalled that gas would soon be transported onshore via pipeline from Rough, Britain’s largest storage facility, 18 miles away in the North Sea.

The injection of gas from Rough — whose surface area equals the City of London and Westminster combined — into the national network via Easington for the first time in five years helped meet increased demand for heating and electricity generation on a cold, flat Tuesday.

It also comes amid calls for the government to examine the UK’s longer-term approach to energy storage as households contend with high gas and electricity bills, sparked by the extreme volatility in global markets since the Ukraine war.

Energy group Centrica closed the terminal in 2017 after deciding it was no longer viable without state subsidies. But last month it reopened the 37-year-old facility as storage, at the government’s request.

It will, though, operate at only one-fifth of its previous capacity of 150bn cubic feet of gas for the next two winters, given the investment and work required to ensure operations remain safe.

“We need more battery storage and we need more gas storage,” said Chris O’Shea, Centrica’s chief executive, on a visit to Easington this week.

Although the company had been considering options for Rough for some time, its reopening was one of several steps that ministers rushed to take after Russia retaliated against sanctions over Ukraine by weaponising gas supplies. That triggered a global race for alternative energy sources and a surge in wholesale energy costs.

Rough’s 30bn cubic feet capacity is equivalent to about nine tankers of liquefied natural gas and enough to meet three days of peak domestic demand. Low pressures since its reopening also limit how quickly gas can be withdrawn.

At present, withdrawal rates are limited to 4.5mn cubic metres a day, which would meet only about 1 per cent of demand on a cold winter’s day, according to National Grid forecasts.

Before Rough was brought back on stream, just five days of gas demand could be met by storage in the UK, according to energy consultancy Rystad. By contrast, France, Germany and Italy had 112, 111 and 97 days of reserves respectively. More gas storage mitigates high prices, as well as providing a buffer in the rare event of shortages.

The profitability of storage relies on a big difference between gas prices in summer — when higher temperatures historically lowered demand and thus costs — and winter. But in the past decade that seasonal differential no longer proved a sufficient draw for investors to pile into new facilities.

Long before Rough’s closure, storage developers had implored the government to implement a financing mechanism known as “cap and floor”, which guarantees a minimum return.

The tool has been used to spur construction of other energy infrastructure, including subsea power cables. But in 2013, David Cameron’s coalition government decided no subsidies should be provided for gas storage, saying it was “increasingly easy to import additional supplies to the UK if required”.

Yet after almost 18 months of sky-high prices and concerns over a possible gas crisis, storage operators hope the government will now reconsider.

“The events of the last 12 months have taught us that we can’t take energy security for granted,” said Mike Foster, head of trade body the Energy and Utilities Alliance. “A responsible government would look at all options,” he said, adding that it was “incumbent” upon ministers to assess models similar to cap and floor for gas.

Centrica made an undisclosed investment from its own balance sheet to prepare Rough for this winter, and benefited from lower gas prices while filling the facility in October and November owing to unseasonably warm weather.

The company has said it could fully restore Rough to its old capacity through refurbishment or a rebuild, enabling it to store methane in the short term and hydrogen in future. But the group would need a financing mechanism to encourage it to commit the estimated £2bn required.

By being hydrogen-ready, Rough could also comply with the UK’s 2050 net zero emissions target, the company has argued.

The government considers low-carbon hydrogen — produced so as not to release harmful gases into the atmosphere — vital to stripping emissions from some of the most polluting sectors, such as steel and chemicals.

Centrica has said, that under some forecasts, the equivalent of two new Roughs would be needed to meet future demand for low-carbon hydrogen, although academics and experts disagree about the extent to which the gas will be used.

If the right incentives were forthcoming, O’Shea said, the company could potentially start investing from next year, although the full £2bn project would take between five and seven years to complete.

“The real prize for the country is to have Rough at full capacity . . . 150bn cubic feet for the long-term, designed for hydrogen and able to store methane in the interim, that’s the real prize and I’m very open to having any conversation with government about that,” he said. “[Rough] is truly a world-class asset.”

The Department for Business, Energy and Industrial Strategy said: “While Britain already has secure and diverse energy supplies, this government will leave no stone unturned when it comes to bolstering our energy security.

“The reopening of the Rough gas storage facility ahead of the winter will provide an approximately 50 per cent increase in GB gas storage capacity, further strengthening the UK’s energy resilience and making us less susceptible to [Vladimir] Putin’s manipulation of global gas supplies.”