British Gas owner's decision could cost it £240m and follows move by energy minister to block subsidy to finance project
Centrica on Monday blamed the government as it abandoned plans to build two gas storage facilities that would have created hundreds of jobs and increased the security of energy supplies in the UK.
With the owner of British Gas expected to increase prices to consumers in the coming days, the company said it would not build a gas storage plant at Baird, in the North Sea, and put on hold "indefinitely" a project at Claythorpe in East Yorkshire.
The decision will cost Centrica £240m, which will be taken as an exceptional cost in its 2013 results, and was made after energy minister Michael Fallon concluded this month that subsidies would not be offered to encourage companies to build more gas storage.
Centrica said the move left the UK with the capacity to store 21 days of gas supplies, in stark contrast to countries in continental Europe, where France and Germany, for instance, have 122 days and 99 days respectively.
The company owns the biggest storage facility, Rough, capable on its own of holding 15 days' supply of gas. Baird, if it had gone ahead, would have added a further 13.5 days and potentially created hundreds of jobs building the site and more permanent ones after it was completed.
The UK has become increasingly reliant on gas imports in recent years and the lack of gas storage was highlighted this year when it emerged the country had come within hours of running out.
In May Rob Hastings, director of energy and infrastructure at the Crown Estate, which owns gas storage under the sea bed, admitted the UK had at one point in March just six hours of supply left in storage.
Hastings told the Financial Times: "We really only had six hours' worth of gas left in storage as a buffer." It followed the record low temperatures in March, which bolstered demand for heating at time when a pipeline was also damaged. Energy suppliers were later criticised for holding back supplies during this critical period.
The Department of Energy and Climate Change (Decc) insisted it had no concerns about storage facilities as stored gas was never used on its own but only in addition to other sources of supply – notably the North Sea, which still contributes 50% of supply, as well as pipelines and terminals.
"We get gas from a diverse range of sources, with around half from UK gas fields, a third from Norwegian and EU pipeline imports, a fifth from LNG (liquefied natural gas) imports from global markets and 7% from gas storage (in 2012)," a spokesperson for Decc said.
"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. Gas storage, while important, only provides a small proportion of UK total supply," a spokesperson said.
Fallon argued this month that by not subsidising the cost of gas storage facilities the government would save customers £750m over a decade. The government did not just look at whether to provide subsidies but also considered forcing gas companies to secure a certain amount of supply or to hold more gas in storage.
Centrica, which has pulled out of building nuclear plants in the UK, cited "weak economics" for withdrawing from the gas storage facilities.
This relates to the narrowing difference between the price of gas in the winter and the summer, which had previously allowed companies to rely on selling gas more expensively in the winter than it was bought in the summer.
Centrica had warned in July that it might need government support for the projects because of the market conditions.
Decc pointed to two more storage facilities under construction in Cheshire, at Stublach and Hill Top Farm, as adding to storage next year and said two storage facilities were opened at Aldbrough, Yorkshire, in November 2012, and Holford, Cheshire, in February 2013.
Article Source : http://www.guardian.co.uk
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