British Gas owner Centrica has dealt a blow to Britain’s energy security plans by shelving two huge gas storage projects worth in excess of £1.5 billion.
The energy giant blamed the UK Government’s decision not to subsidise new gas storage and “weak economics” for axing the projects in East Yorkshire and the North Sea.
Its decision will leave the UK increasingly reliant on imported gas, and comes after the UK’s stored gas supplies fell dangerously low in March with warnings of supply interruptions following a prolonged cold spell.
Centrica axed its planned conversion of the depleted Baird gas field off the coast of Norfolk, which would have held enough gas to meet 13.5 days of peak demand, at a cost of £240 million.
The project was expected to create more than 1,000 construction jobs.
And it also put on hold indefinitely its much smaller project to convert a depleted gas field at Caythorpe in East Yorkshire into a storage plant.
“This decision was taken in light of weak economics for storage projects and the announcement by the UK Government on September 4 ruling out intervention in the market to encourage additional gas storage capacity to be built,” Centrica said.
The company, which is thought to be planning a price hike, will write off the money spent on buying Caythorpe and 70% of Baird, as well as engineering costs, resulting in impairments and provisions totalling almost a quarter of a million pounds.
The storage projects relied on being able to buy gas cheaply during the summer when demand is low, and selling it for a profit when demand soars in the winter.
Centrica’s decision was influenced by a narrowing difference between summer and winter prices.
“We believe there’s still a need for new gas storage capacity in the UK but unfortunately market conditions now do not make that investment possible for us,” a spokesman said.
Earlier this year Centrica also pulled out of plans to build the next generation of new nuclear power plants in the UK, blaming “uncertain project costs” and leaving French utility EDF to go it alone.
Britain’s storage capacity falls well behind that of its European neighbours, at only around 15 days’ supply. Germany has around 99 days, and France 122.
Announcing its decision not to subsidise earlier this month, the Department for Energy and Climate Change (Decc) said gas supply was “resilient, with supplies outstripping demand”.
Energy minister Michael Fallon argued that consumers would save £750m over a decade without subsidy.
Centrica-commissioned reports claimed the developments would have added between 40p and 80p a year to customers’ bills over 25 years.
Decc insisted the market could provide new gas storage without subsidy, citing new storage plants in Yorkshire and Cheshire and two more under construction.
“The UK has the capacity to deliver twice the amount of gas required on a normal winter’s day, and has coped well with recent extreme winter conditions,” a spokeswoman said.