UK's Centrica sees 'challenging' outlook for gas storage business on low spreads

UK utility Centrica sees a "challenging" outlook for its gas storage business due to low seasonal spreads, it said July 25 in its first-half results report.

Following the reopening of Rough as a gas storage asset in the second half of 2022, Centrica nearly doubled its capacity to 54 Bcf in June 2023, boosting UK energy supply security.

Centrica said July 25 that Rough continued to operate with 54-Bcf capacity and a third-party exemption until at least 2030.

However, storage economics in 2024 have been challenging due to a relatively narrow summer-winter spread, which lessens the incentive to inject gas into storage in summer for withdrawal in winter.

"We currently expect the Centrica Energy Storage+ (Rough) future outlook [to be] challenging given low seasonal spreads," it said.

The spread between the NBP Winter 24/25 contract and the NBP day-ahead averaged around 19 pence/therm in the second quarter of 2024, according to price assessments by Platts, part of S&P Global Commodity Insights.

That compares with an average spread between the NBP Winter 23/24 price and the NBP day-ahead in the second quarter last year of 50 p/th.

Centrica said its storage business delivered adjusted operating profit of GBP53 million in the first half, down from GBP251 million in the same period last year.

This, it said, reflected the lower seasonal gas price spreads and reduced volatility.

Rough investment

Centrica also said it retained the option to invest GBP2 billion ($2.6 billion) to transform Rough into one of the world's biggest methane and hydrogen storage facilities.

"These projects remain contingent on suitable regulatory models being established, and we look forward to working with the new UK government to demonstrate the value of these assets in a net zero future and to progress these projects," it said.

Long duration storage, including for methane and hydrogen, could be subsidized via regulated asset base, contracts for difference or cap and floor mechanisms, the UK Parliament's Science and Technology Committee said in March.

At its 69%-owned Spirit Energy upstream unit, Centrica said total production volumes were down 18% in the first half.

This, it said, largely reflected production outages at Morecambe during May and June which have subsequently been resolved.

Total production volumes amounted to 6.9 million barrels of oil equivalent in the period, Centrica said.