15th July 2016 | Posted by: Daniel Birkett | Industry News

The UK gas market could be subject to sharp price spikes as a result of ageing storage facilities; Reuters reports.

Ageing gas storage facilities in the UK could result in an increase in maintenance and a reliance on European imports in order to meet demand; potentially leading to sharp increases on the gas market.

Centrica's Rough facility is the largest storage site in the UK but is now over thirty years old. The site was closed last month for a period of 42 days to undertake a thorough inspection in order to assess the vulnerability of the nation's storage capacity. The news of this lengthy inspection led to an 8% increase in winter gas prices due to doubts about whether the facility will be refilled in time for the winter period, in addition to fears regarding its future in the long term.

Rough Storage Facility

Energy Aspects analyst, Trevor Sikorksi said: "The facility is showing signs of wear and tear and we have seen a decrease in the operational reliability of Rough over the last couple of years. It is hard to expect that it will get better."

Other storage sites in the UK are also becoming less profitable and are suffering from a lack of investment; this led to SSE reducing the capacity at its Hornsea facility last year.

In comparison to Europe's 110 Bcm of storage capacity, the UK's currently stands at just 5 Bcm.

Year-round supply thanks to Norwegian imports, healthy links to mainland Europe, in addition to regular liquefied gas shipments (LNG) as storage operators rely on a large swing between winter and summer gas prices in order to create demand for their services and turn a profit.

European gas supply through the two existing interconnectors is becoming more expensive as wholesale prices at the UK trading hub need to rise to procure continental gas flows during times of undersupply.

The drop in the Pound Sterling against the Euro, following Britain's vote to leave the EU will also contribute to more costly European supply.