Britain faces a deepening energy crisis as a result of dwindling reserves and the possible closure of its largest storage site.
With a 150 per cent surge in European gas prices before the seasonal dip in temperatures, the prospect of another inflationary shock is casting a shadow over the October 28 Budget.
The prospect of losing Rough, which accounts for about half of Britain's gas storage capacity, threatens to further weaken the country's ability to withstand supply disruptions as Europe heads into winter with depleted reserves.
Underground gas storage in Britain was only 48 per cent full at the start of October, compared with 94 per cent in Portugal and 99 per cent in Poland, according to figures reported alongside the latest winter outlook from the European Network of Transmission System Operators for Gas.
Britain has historically relied on imported gas rather than extensive domestic storage. In 2024, its storage capacity amounted to only 5 per cent of annual gas demand, compared with an EU average of 29 per cent, according to government figures. Its current capacity equals about seven days of average winter demand.
The problem of limited UK reserves is compounded by uncertainty over the future of Rough, which could close next year unless the government backs a £2 billion redevelopment proposed by its owner, Centrica.
Chris O'Shea, chief executive of Centrica, which also owns British Gas, stepped up pressure on the government on Tuesday, warning that the site, which accounts for about half of Britain's gas storage capacity, would close at the end of the first quarter without a plan to support investment.
"The commercial decision will be that this facility will close at the end of the first quarter," Mr O'Shea told the BBC, rejecting the government's position that Rough's future was a commercial matter for the company.
He said Centrica was seeking a regulatory framework similar to those available to other critical infrastructure operators, providing more predictable returns in exchange for lower investment risk.
Mr O'Shea described Rough as "the biggest battery in the UK", saying the proposed investment could create up to 5,000 jobs while safeguarding almost 1,000 existing positions.
The company has also offered to make the site available as a temporary strategic gas reserve this winter but has yet to receive a response from the government, he said.
"Our system is not resilient. Without energy security, we have no national security," Mr O'Shea said, pointing to increasingly frequent electricity supply margin notices. Britain’s grid operator sought emergency assistance from France on Monday, requesting as much as 1,200 megawatts of additional electricity through an undersea interconnector to help maintain the security of the power system.
Britain will probably not run short of gas this winter, but its limited reserves leave it increasingly exposed to global supply disruptions and competition for liquefied natural gas, according to Neil Quilliam, associate fellow for the Middle East and North Africa at Chatham House.
“The greater risk is not a physical shortage of gas, but a period of tight supply, higher prices and increased competition for LNG cargoes if winter is unusually cold or if there are disruptions to Norwegian supplies or global gas markets,” he said.
Britain still benefits from North Sea production, Norwegian imports, LNG terminals and interconnectors with Europe, which should provide sufficient supplies under normal conditions, he said. However, “the margin for error is becoming uncomfortably small”.
European gas storage is expected to be just 75 to 78 per cent full by November 1, about 10 percentage points below the five-year average, as the Iran war continues to disrupt liquefied natural gas exports from the Gulf.
The supply constraints could persist into next year even if the Iran war ends, with analysts warning that competition for alternative LNG cargoes and the need to replenish depleted reserves could keep prices high. Even with average winter weather, north-west European reserves could fall to about 20 per cent by early April, according to the London Stock Exchange Group.
“It’s not just this coming winter that we are tight, but we risk being tight the next summer,” Yuriy Onyshkiv, an analyst at LSEG, told Reuters.
Entsog warned last week that strong LNG deliveries would be needed throughout the winter to maintain European storage levels.
EU gas storage was 72 per cent full at the start of October, compared with about 83 per cent a year earlier. Entsog’s central scenario has EU inventories falling to about 30 per cent by the end of March.
In its worst case – a severe winter combined with tight LNG supply and a halt to Russian pipeline flows – stocks would drop to 11 per cent, the level of the bloc’s remaining strategic reserves.
A further challenge comes on January 1, when an exemption allowing imports of diesel and jet fuel refined from Russian crude in third countries is due to expire. In the same month, the EU’s full ban on Russian LNG imports takes effect, which is expected to tighten European gas supply further.
Consultancy Cornwall Insight forecasts a 16 per cent increase in Britain’s annual household energy price cap to £1,999 in January, after a 4 per cent rise this month that took bills to a three-year high.
The outlook adds to pressure on Prime Minister Andy Burnham’s government before the budget, with limited fiscal room expected to constrain further support for consumers.
