Centrica to wind down gas storage at Rough in the North Sea

Centrica Storage Ltd. has completed a well testing program at its 3.4-bcm Rough gas storage facility in the UK southern North Sea.

Offshore staff

WINDSOR, UK – Centrica Storage Ltd. (CSL) has completed a well testing program at its 3.4-bcm Rough gas storage facility in the UK southern North Sea.

The company also analyzed the feasibility of returning Rough to injection and storage operations (via the existing offshore platform).

However, it concluded that, due to the high operating pressures involved, and the fact that the wells and facilities are at the end of their design life and have suffered numerous different failure modes while testing, there is no guaranteed that the assets and facilities can be safely re-operated.

Also, an assessment of the economics of seasonal storage and the costs of refurbishment or rebuilding the facility, and replacing the wells, suggests that neither option would be economic.

CSL now plans to apply to permanently end Rough’s status as a storage facility, and to produce all recoverable cushion gas from the field, estimated at 183 bcf.

According to analyst Wood Mackenzie, the decision is not surprising given the commercial realities of the current gas storage market in the UK and wider northwest European market. However, closing the UK’s largest gas storage plant will impact the UK’s security of supply in time and will likely force a UK government review of its position, particularly in light of current Brexit negotiations.

Rough has provided nearly 70% of the UK’s storage capacity, but for some time it has been increasingly difficult forCentrica and other storage operators to even cover their annual operating costs.

Due to the fact that the facilities are more than 30 years old, offshore, and suffering from technical problems, and therefore more expensive to operate than average, a life extension program would have been hard to justify.

Further, the analyst argued, the 5.2 bcm (183 bcf) of cushion gas that resides in Rough, enabling it to operate at a high pressure, also has significant residual value - $750-million plus in the UK market, at current prices.

Assuming regulatory approval for Centrica’s plans, Rough might deliver gas to the UK market for the next few winters as if operating as a normal storage facility, but in depleting mode.

Historically the UK has been self-sufficient in gas with enough flexibility in its supply to meet all winter needs. This left Britain with limited storage of only 24 days cover compared to 105 in France and 100 in Germany.

Rough’s closure will reduce the storage cover to just 10 days, making Britain almost totally reliant on winter flows from the continent and LNG imports to balance daily markets.

On the other hand, various other gas projects that have been frustrated by poor market conditions and lack of government support might now go forward.

06/22/2017

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