A series of problems and outages at the UK’s Rough storage facility has been one of the dominant issues for the European gas market over the last two years. It is now almost certain that Rough will never return to its previous levels of deliverability and storage capacity.
Rough was fully commissioned as a gas storage facility in 1985, making it just over 30 years old—five years beyond its original design lifespan. Increasing problems at Rough since March 2015 led its owner, Centrica Storage (CSL), to undertake a detailed testing program of the facility’s 30 wells.
Testing led to significant disrupted summer injection capacity over Q3 16 and delays to withdrawal capacity availability in Q4 16. In November 2016, CSL announced the closure of the smaller operating installation at Rough, permanently removing six operational wells. Problems at a further three wells mean that that nine of the 30 wells will not be available for summer injection, taking available wells down to a maximum of 21.
In late February, CSL announced injection services are unlikely to be available before the end of June 2017 due to its ongoing testing. With 20 days of summer seasonal maintenance, that means just over 70 days of injection to the end of September, and maybe another 15 days or so in October, before the withdrawal season begins.
Given a late start to the injection season and a reduced number of operating wells, and using CSL’s withdrawal curves for a 1 July start, we calculate that with 21 operating wells (the maximum available), total injections over Q3 17 could be as high as 1.64 bcm, although only 0.94 bcm would be injected as part of offered bundled storage capacity sold to the market (SBUs).
With a 1 July start and 16 operational wells (a risk-adjusted level of operation), total injections over Q3 17 could total 1.56 bcm, though only 0.76 bcm would be injected as SBUs.
Taking all of this into account, summer injections into Rough will be no higher than 1.6 bcm and are likely to be lower. We estimate that the likely level of total UK stored gas at the start of October will be between 2.8 bcm and 3.5 bcm. If maximum injection is possible over all of October, that would add around another 0.6 bcm of gas into inventories.
The deterioration in Rough capacity appears structural. Given the age of the asset, the costs of repairs, and the low level of prevailing summer-winter spreads, we do not think this capacity will ever improve on whatever figure CSL determines at the end of testing. This means bigger sustained winter premiums for the NBP over the TTF and bigger discounts over the summer.