Centrica fuels fears that UK is running out of gas

The Government was accused of playing fast and loose with Britain’s energy security last night after Centrica finally lost patience with its refusal to offer subsidies to bolster the country’s gas supplies and pulled out of a deal to build two major new storage projects.

Centrica’s decision to drop plans to build new facilities in East Yorkshire and the North Sea at a cost of £240m follows its move in January to pull out of a consortium building a new nuclear power generator at Hinkley Point in Somerset.

It gave rise to fresh new fears that Britain was leaving itself vulnerable to supply shortages in future years as North Sea gas supplies dwindle and the country becomes increasingly dependent on gas exporting regimes in potentially unstable parts of the Middle East and Russia.

The cold spell in March saw the country come within six hours of running out of gas, highlighting the fragile state of our reserves. As well as safeguarding against shortages, storing gas helps stabilise prices by allowing countries to bulk buy in the summer when prices are lower.

The British Gas owner’s decision came just weeks after its chief executive, Sam Laidlaw, was said to have been left fuming after a caustic exchange of words with the Energy minister Michael Fallon, who said he would not subsidise the energy giants.

In a rare criticism of the Government, Centrica directly blamed the Department of Energy and Climate Change for its decision to pull out of the projects, which would have cost more than £1.5bn. It said the decision was taken because of “the announcement by the UK government on 4 September ruling out intervention in the market to encourage additional gas storage capacity to be built. “

Industry sources were shocked by the statement, with one senior gas industry executive saying: “Those are very harsh words for a company that relies so much upon the Government for its business.”

Centrica sources denied a rift between Mr Laidlaw and Mr Fallon (pictured) but said Mr Laidlaw was clearly “disappointed” by the Government’s decision. Centrica also yesterday had to wipe off £240m from the value of the projects on its books.

It bought the depleted gas fields of Caythorpe in East Yorkshire and Baird in the southern North Sea (apart from a 30 per cent stake) to add to its existing storage site called Rough, also in the North Sea.

Mr Fallon has said the decision to leave gas supplies to the market would save households £750m in bills over the next decade. He says gas supply is “resilient, with supplies outstripping demand.” But Mike Foster of the storage trade association, the Energy and Utilities Alliance, said the £750m figure referred to a cost-benefit analysis that also stated a potential £1bn of potential savings to consumers in the event of a price spike.

The shadow Energy minister Tom Greatrex said: “This decision is symptomatic of an energy sector that has no confidence in the Government’s energy policy. Time and again, investors are put off by a Government that doesn’t know where it stands.

Mike Foster of the storage trade association, the Energy and Utilities Alliance, said: “The Government was warned again and again that this is what would happen if it did not bring in market intervention [to fund new storage sites]. Now, there is no insurance policy in place for the day when, in seven years time, we get some price spike.”