British Gas owner Centrica stops plan to build gas storage

Centrica head office Centrica said it would not built the storage plans without a government subsidy

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British Gas owner Centrica says it will not build two gas storage projects in a move that will leave the UK more dependant on gas imports.

The company said it would not construct the facilities, in Caythorpe in East Yorkshire and in the North Sea, because the government had decided not to subsidise new gas storage.

Centrica's decision will leave the UK with some 15 days of stored gas supply.

The news that it will cost the company £240m left the shares down 1.5%.

Converting the North Sea holding site at the Baird gas field off the North Norfolk coast would have cost £1.5bn and created the second-biggest in the country.

The UK's stored gas supply is far lower than in Germany and France, where between 99 and 122 days of gas supplies are stored. But the government has pointed out that the UK does not need the same amount of storage facilities because of the country's access to North Sea supplies and an extensive range of import infrastructure.

In extreme cold weather conditions, gas supplies in the UK dip sharply.

In March, an extended period of low temperatures left supplies so low there were fears of interruptions to the gas supply.

Storing gas is designed to allow suppliers to buy gas for storage in summer when lower demand typically has meant lower prices, although in recent years the seasonal price gap has narrowed making storage sites less profitable.

Subsidy

Centrica commissioned two reports on gas storage.

They found that subsidising its projects would add between 40-80p a year to bills over 25 years.

The Energy Minister, Michael Fallon, has said that subsidising the storage facilities would cost the country's energy users £750m over 10 years and that gas supply is "resilient, with supplies outstripping demand".

Centrica said: "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."

British Gas owner Centrica warned in July that UK domestic energy bills could go up again this winter.

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