UK government taking gamble on gas price falls

Britain could be exposed to price spikes if storage capacity is inadequate by next winter

The Easington Gas Terminal on the Yorkshire coast. If the UK lacks adequate gas storage it could be vulnerable to sharp price rises. Getty Images

The UK government is taking a gamble that wholesale gas prices in Europe will fall further, after failing to secure a deal to increase Britain's gas storage capacity before next winter.

One of the government's top advisers, Sir John Armitt, told the Financial Times that boosting storage capacity was needed to “boost our resilience”.

Sir John Armitt, the chairman of the National Infrastructure Commission, made the comments after the collapse of talks between the government and Centrica, the company that owns Rough, the country’s biggest gas storage facility.

Rough was partly reopened last year as gas prices soared following Russia's invasion of Ukraine. The facility had been mothballed five years earlier.

Having diminished storage capacity would mean the UK would be vulnerable to any sudden price rises in the European wholesale gas market.

“Allowing Rough to fall off the table again might be understandable if you are certain that the gas price spike of the last year won’t be repeated and that other forms of supply are secure,” Sir John told the Financial Times.

“But that’s a big gamble to place, given the UK’s continuing reliance on gas in the short term.”

Storage buffer against price spikes

Although the UK has the largest capacity for turning liquefied natural gas (LNG) back into gas and is connected to Europe by two huge pipelines, analysts maintain that a decent level of storage capacity would protect against sharp price rises for imported gas.

More storage translates to more price protection, because the UK, like the rest of Europe, can be exposed to daily spikes in the wholesale price of gas.

Wholesale gas prices have been falling in the UK and are now about 132p per therm, compared with the 598p per therm record in August, according to ICIS data.