Major energy users warn government on need for gas storage

A coalition of major energy users has called on Government to urgently address the “major competitive disadvantage” caused by the UK’s lack of quick response gas storage facilities.

In a letter to energy secretary Ed Davey, seen by Utility Week, groups representing energy intensive business warned that “damaging short term energy price spikes” could impact the UK’s industrial productivity.

The UK is increasingly dependent on gas imports and therefore increasingly vulnerable to volatility in the gas market, which could have a damaging impact on the economic competitiveness of energy intensive users, the letter argues.

Representatives from business groups including the Major Energy Users Council and the Energy and Utilities Alliance called on the government to reconsider its prior decision to reject a so-called ‘fast-cycle’ gas storage facility planned by US company Halite Energy for the Lancashire area.

Unlike long- and medium-range storage facilities like Rough which largely inject and withdraw gas on a seasonal basis, the Preesall fast-cycle storage project could deliver gas to the grid at short-notice to guard against temporary but damaging market price spikes.

Halite Energy’s plans involve storing up to 900 million cubic metres of gas in 19 salt caverns under Preesall.

The £600 million gas storage facility was initially rejected by government but is now being reconsidered after the rejection was overturned in the High Court. A final government decision is expected imminently, according to the letter.

“We urge the ministers to be mindful of the vital importance of delivering increased storage capacity for the UK economy and to recognise the Preesall project as a strategically important, fast-cycle facility of significant scale that would, if approved, help to ensure UK economic competitiveness,” the letter said.

“As the UK becomes increasingly dependent on imported gas supplies it is vital that domestic gas-supply infrastructure, including increased gas storage capacity, is fit to meet this new reality,” the letter added.

Although the UK’s gas storage levels for the coming winter are considered more than healthy, National Grid admitted in its recent Winter Outlook report that the UK would need to rely heavily on expensive liquefied natural gas cargoes if a Russian gas supply disruption cut European gas deliveries.

“At a time of growing geopolitical tensions and increasing uncertainty over UK energy security of supply, it is vital that the UK has the necessary gas supply infrastructure to support jobs and economic growthin energy intensive businesses throughout the country,” the letter added.

Last year government ruled out subsidies to encourage more gas storage, saying security of supply could be delivered more cheaply by the market. Centrica subsequently abandoned two gas storage projects.