Centrica already owns the UK's biggest gas storage project, the Rough facility off the coast of East Yorkshire

Centrica scraps major gas storage projects

Centrica has blamed a lack of Government support for its decision to shelve two huge gas storage projects at a cost of £240m.

The move is a major blow to Britain's energy security plans but the energy giant, which owns British Gas, said the Government's decision not to subsidise new gas storage and "weak economics" meant they had no choice but to axe the projects in East Yorkshire and the North Sea.

Centrica axed its planned £1.5bn conversion of the Baird depleted gas field in the southern North Sea off the North Norfolk coast, which would have held enough gas to meet 13.5 days of peak demand. The project was expected to create more than 1,000 construction jobs.

It would have become Britain's second-biggest gas storage site behind Centrica's Rough facility off the coast of East Yorkshire, which can meet 15 days of peak demand. The firm has also put on hold indefinitely its much smaller project to convert a depleted gas field at Caythorpe in East Yorkshire into a storage facility.

In a statement Centrica said: "This decision was taken in light of weak economics for storage projects and the announcement by the UK Government on September 4 ruling out intervention in the market to encourage additional gas storage capacity to be built."

The decision will leave the UK increasingly reliant on imported gas with only around 15 days of gas supply in storage. In comparison, Germany has around 99 days of gas storage capacity and France has 122 days of supply.

The lack of spare capacity was brought into focus during a prolonged cold spell in March, which saw Britain's stored gas supplies fall dangerously low amid warnings of supply interruptions.

Centrica commissioned two reports on gas storage, which found subsidising it would have added 40p to 80p a year to customers' bills over 25 years, but Energy minister Michael Fallon argued that the decision not to subsidise gas will save consumers £750m over a decade.

When it announced the decision, the energy department said gas supply is "resilient, with supplies outstripping demand", adding that the UK has coped well with extreme weather conditions, including the freezing March.

Centrica, which is thought to be planning a price hike, will write off money spent on buying Caythorpe and 70 per cent of Baird, as well as engineering costs, resulting in £240m of impairments and provisions.

The projects relied on being able to buy gas cheaply in the summer when demand is low, and selling it for a profit during the winter when demand soars. Centrica's eventual decision was influenced by the narrowing difference between summer and winter prices.

A Centrica spokesman said: "We believe there's still a need for new gas storage capacity in the UK but unfortunately market conditions now do not make that investment possible for us."

Centrica is also reportedly planning to add an average £100 to annual bills despite vowing earlier this year to use an earnings windfall from the cold weather to keep a lid on tariffs.

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