Gas Storage: Rough Old Business

One of our esteemed Anon’s asked what’s up with Centrica closing down the Rough storage facility.  It wasn’t a complete bolt from the blue.  But it’s not small !  Rough represents getting on for 75% of UK’s gas storage inventory – though a smaller % of total deliverability from storage, because Rough is a slow old beast and can’t pump out very fast.  The new generation of ‘fast cycle’ facilities are smaller but can fill and empty in a couple of weeks, vs Rough which more or less took all summer to fill up, then months to blow down in winter.  ‘Seasonal storage’ in the terms of the trade.  (Rough trade, geddit?)

I wrote about some of this at fair length a few years ago when M.Fallon called Centrica’s bluff and declined to subsidise them to build a new one.  So they didn’t.  It was unusual for a politician to spurn a request of that sort in 2013, and it’s even more unusual these days.  No-one builds a power station of any kind today without public money (via electricity consumers) being sent their way.

Rough was always an artificial thing, built by the old BG in the early 80′s – the closing days of their monopoly, when they could just pass through the costs.   It’s very debatable whether it was needed then: but they just did it anyway – because they could.  Engineers love building things.

Seasonal storage is not much wanted these days either – the spread between summer and winter wholesale gas prices is at an all-time low, which signals as much.  It’s one of the reasons Centrica can’t justify restoring Rough to health.  That and the one-off revenues (half a billion quid over a few years) they will make as they blow down the rather substantial amount of ‘cushion gas‘ for the last time – the opposite dynamic to most offshore field abandonments, which only cost money and are therefore typically put off as long as possible.

How will we cope in winter?  We nearly found out in March a few years back when Rough temporarily conked out during a cold spell.  Extra LNG cargos should do the trick: we have very substantial LNG regas facilities in the UK – built by Mr Market Mechanism between 2000-2010 with narry a subsidy in sight – just a bunch of companies willing to follow through on the obvious fact that UK gas production started its terminal decline at the start of the century.  Glory be.  One of the great examples of the market being left to run its course that I often like to cite.  (It helps that regas is really cheap and quick to build.)

Come that freezing March month, and it may not be cheap in the spot market, though …  then you find out who’s hedged and who’s shorts are dangerously exposed.  Chilly, it can be.  And of course if our good friends in Qatar are still in bother, well, hmmm.

ND