Europe, U.K. Gas Prices Rise as Centrica Reopens Rough Storage Facility By Investing.com

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Europe, U.K. Gas Prices Rise as Centrica Reopens Rough Storage Facility

Commodities Oct 28, 2022 04:42AM ET

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Europe, U.K. Gas Prices Rise as Centrica Reopens Rough Storage Facility

By Geoffrey Smith

Investing.com -- Natural gas futures for the U.K. and northwest Europe rose on Friday after U.K. utility Centrica PLC (LON:CNA) said it had partially reopened the Rough storage facility under the North Sea.

Centrica said the investments it has made in recommissioning the biggest U.K. storage facility will allow it to hold up to 30 billion cubic feet (850 million cubic meters) of gas during the coming winter season.

The development will be a major boost to the resilience of both the British and European gas markets as they adapt to a new reality without shipments from Russia, which previously supplied around a quarter of the continent's gas needs. It's of particular importance to the U.K., which had relied on a diversity of sources to guarantee spot market supplies in recent years, allowing its strategic storage capacity to atrophy. The U.K. has some of the lowest levels of gas storage in Europe at 9 days, compared to Germany at 89 days, France at 103 days and the Netherlands at 123 days, according to Centrica.

Rough was historically by far the biggest of the U.K.'s storage sites, and to start with it will only operate at around 20% of its original capacity, Centrica said. Even at its current limited scale, Rough will increase the total amount of U.K. storage by around 50%.

The immediate impact of Rough's reopening is to create extra space for energy suppliers to secure gas supplies today for use over the next six months. Spot market prices have fallen sharply in recent days because European storage facilities were all almost full, thanks to aggressive precautionary buying over the summer, leading to a relative abundance on the market that could only be cleared by low prices.

The front-month U.K futures contract rose 6.5% on the news to 230 pence a therm, while the ICE Dutch TTF front-month contract rose 5.7% to 113.5 euros a megawatt-hour, its highest level this week.

In the longer term, Centrica aims to increase the facility's capacity to accept injections both of natural gas and hydrogen.

"In the short term we think Rough can help our energy system by storing natural gas when there is a surplus and producing this gas when the country needs it during cold snaps and peak demand," Centrica CEO Chris O'Shea said in a statement. "Rough is not a silver bullet for energy security, but it is a key part of a range of steps which can be taken to help the UK this winter."

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