LONDON, Sept 23 (Reuters) – British utility Centrica said on Monday it was calling off two gas storage projects after the government refused this month to help build stockpiling sites, dealing another blow to a sector needed to feed the country's high winter demand.
Centrica, which owns household supplier British Gas, said it would incur 240 million pounds ($384 million) in costs for scrapping its offshore project at Baird in the North Sea and putting its Caythorpe plan in east Yorkshire on hold indefinitely.
"This decision was taken in light of weak economics for storage projects and the announcement by the UK government on 4 September ruling out intervention in the market to encourage additional gas storage capacity to be built," Centrica said in a statement.
The British government had said subsidising storage projects would be too expensive for taxpayers.
Britain's weak gas storage infrastructure was exposed earlier this year when an exceptionally cold and long winter depleted the country's stockpiling facilities.
Profits from running gas storage in Britain have dropped in recent years due to the shrinking price differential between summer and winter gas prices.
Gas traders typically buy gas in summer when prices are low and sell it at a profit in winter, when higher demand lifts contracts, but that spread has tightened.
Centrica this year sold capacity at the country's largest storage site at a 30 percent discount compared to the previous year, making it economically unfeasible to build new sites.
Gas storage operators in other western European markets have felt the same decline in interest in their business, which has forced them to offer financial sweeteners and more flexible terms.
Copyright 2016 Thomson Reuters. Click for Restrictions.
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