UK's Centrica reopens Rough gas storage facility

Centrica has reopened the UK's Rough gas storage facility having completed engineering upgrades over the summer and commissioning over early autumn, the company said Oct. 28.

The first injection of gas in over five years has been made, with the site in a position to store up to 30 Bcf (850 million cu m) of gas over winter 2022-23.

"The work done so far means that Rough is operating at around 20% of its previous capacity this winter, immediately making it the UK's largest gas storage site once again and adding 50% to the UK's gas storage volume," Centrica said.

Platts assessed the price of UK day-ahead natural gas at 60 pence/therm ($6.96/MMBtu) Oct. 27, down from 196 p/th month on month, S&P Global Commodity Insights data showed.

The company restated that its long-term aim was to turn the Rough gas field into the largest long-duration energy storage facility in Europe, capable of storing both natural gas and hydrogen.

The UK has some of the lowest levels of gas storage in Europe at nine days, compared to Germany at 89 days, France at 103 days and the Netherlands at 123 days.

Separately, the company sent out market transparency updates to confirm the current rates of potential usage now the site has officially been reopened.

"Centrica Storage Limited have completed commissioning and testing of the Rough field," the updates said of both injection and withdrawal operations, adding there would be no impact of storage operations on the wider Easington terminal.

The updates specified that current maximum injection rate stands at 6.5 million cu m/d, while technical capability for withdrawal stands at 4.5 million cu m/d.

Within the last month, UK energy regulator Ofgem approved a request to allow Centrica to utilize its long-term entry capacity holdings at Easington for the newly-created Rough Storage Aggregated System Entry Point, and this point later became a relevant point with respect to baseline capacity, public information requirements and classification as a storage site.

These approvals followed a flurry of other required permissions during the summer, including the facility's reclassification as a storage site from a production field, which have now culminated in its reopening.

Potential return

As the crisis in European natural gas unfolded, both the UK government and Centrica confirmed that they were in 'exploratory talks' about the future of Rough.

With opposition leaders in parliament calling for its reintroduction to enhance security of supply and temper market volatility a year ago, it emerged in May that these exploratory talks were taking place between the company and Department for Business, Energy and Industrial Strategy (BEIS).

Centrica declined to comment further on the talks. In a Freedom of Information request, BEIS told S&P Global that: "There is a strong public interest in ensuring that the commercial interests of external businesses are not damaged or undermined by disclosure of information which is not common knowledge, and which would adversely impact their economic interests and future business."

In the company statement Oct. 28, Centrica's Chief Executive Chris O'Shea confirmed that Rough's reintroduction this winter followed "a substantial investment in engineering modifications," but was not a "silver bullet" for energy security, which would require other additional measures to achieve.

During a results presentation July 28, Centrica had said a phased return for Rough was possible this winter, starting at 30 Bcf in 2022-23 and rising to 60 Bcf in 2023-24.

Initial investment in 2023 was put at GBP150 million ($174 million). Centrica 's longer-term hydrogen storage plan for Rough would cost GBP2 billion; an investment which it said would require a "regulated return model" to support.

Return potential

Whatever the nature or outcome of the talks, the reopening of Rough could not have been more timely given the current situation in the market, and potential pockets of supply shortages across Europe this winter.

Indeed, not only has the potential shortage of energy been reflected in the historically-high wholesale price for UK gas futures, but weakness on the prompt market as storage-space availability narrows has given rise to some of the greatest time-arbitrage opportunities in the market's history.

In October alone, the average NBP Q1 2023 price for the peak-heating winter quarter has averaged 429.337 p/th to date, while spot injections could be made at 99.886 p/th on average, and month-ahead injection hedges for November would have cost around 248.374 p/th.

This translates into a potential return of 180.963 p/th on a November hedge, meaning 83 million therms (230 million cu m) injected and subsequently withdrawn in Q1 would be required to recover the cost of the initial investment. This would, however, require an extra GBP206 million of capital in the first instance if this volume was purchased at the NBP.

Nevertheless, with such a quick return on their investment, Centrica would have seen the opportunity to reinvigorate Rough early on in the crisis, which itself would have been born out of the looming threats which Europe faces this winter.