By Susanna Twidale and Oleg Vukmanovic
LONDON/MILAN (Reuters) – The shutdown of Britain’s largest gas storage facility for 42-days sent wholesale gas prices surging on Wednesday on the possibility the country could head into winter with record low inventories.
In an already volatile day of trading driven by expectations of cuts in Dutch gas output and worries over Thursday’s UK referendum on EU membership, Centrica Storage’s announcement that the Rough facility would shut pushed gas prices for this winter more than eight percent higher.
In March last year, Centrica imposed reductions on how much gas could be stored at Rough as a safety precaution after identifying potential issues with well integrity.
“In the course of conducting these works, CSL (Centrica Storage Limited) has identified an additional issue on one of the wells tested,” Centrica said in a market update on its website.
Testing on the affected well is expected to last until Aug. 3, it said.
“The Rough outage is a significant event that means the UK will likely go into next winter with record low storage inventory,” Thomson Reuters senior gas analyst Oliver Sanderson said.
Britain depends in large part on stored reserves to manage winter demand spikes while domestic stockpiles also help ensure security of energy supplies.
Reserves are typically replenished during summer months when demand and prices are low.
The site accounts for around 72 percent of Britain’s gas storage capacity, National Grid data shows, and news of the cut to available storage sparked heavy buying of forward gas contracts, pushing up next winter gas prices.
“With less gas in storage the risk of not being able to meet peak demand days in winter using UK storage increases and exposure to a cold winter also increases significantly,” Sanderson said.
In the shorter-term, reduced demand to refill storage sites this summer could create a glut of supply, pushing down prices and necessitating large-scale exports to Europe via a gas link with Belgium.
Winter supply itself may be adequate even in tight periods by drawing on Norway, continental Europe, offshore fields and liquefied natural gas (LNG) import terminals.
Britain can import LNG via three terminals served by producers such as Qatar, the UK’s biggest provider, at a time when global supply of LNG is growing and new U.S. producers are cranking up exports.
(Editing by Elaine Hardcastle and Mark Potter)