Wednesday 17 August 2022

Rough Gas Storage: A Long, Odd Tale

I last wrote at length about the 'Rough' gas storage facility five years ago, and the story is taking another turn; so, once again by popular request ...

Many moons ago it was discovered by offshore operators (Amoco) that the 'Rough' gas field they'd developed in the North Sea had almost uniquely favourable reservoir geology.  The sandstone is incredibly regular, making it highly suitable for gas storage.  So, only a few years after commencing production, they sold it (at a very handsome price) to the old monopoly British Gas, which had decided it could use a mammoth offshore storage facility for seasonal storage (pump gas in during summer, pump it out in winter).

More: BG declared it was an absolute necessity, to support the heavily winter-biased demand of its residential customer base - the first of many porkies it has told in this tale.  Pre-privatisation, BG was, remarkably, an unregulated monopoly, though it was still liable to the occasional inquiry into its capital expenditures (which it was of course foisting on us captive customers): so it made a bit of a case for why Rough was essential.  I won't bore you with it now, not least because it turned out to be entirely spurious when, a decade later, the privatised BG was being split up and the division which handled BG's residential customer base - still a monopoly at that stage - was invited to bid for whatever capacity in Rough it required to meet customer demand.  It bid for ... precisely zero: yes, somehow when push came to shove Rough wasn't essential - it was in fact totally unnecessary.

Anyhow, in the meantime they'd spent around £1bn - quite a lot of money in the 1980s - on converting the offshore production facilities to be able to inject and withdraw gas at will, coupled with substantially upgraded onshore facilities for the same purpose.  When anyone tells you (as they often will) that essential utilities are too important to be in private ownership, and that monopolies are the right way to go for efficiently ensuring security of supply etc, remind them about Rough - and apply to me for yet more examples of grotesque monopoly gold-plating at our expense, because they are legion.

Well, the thing had had been built, so it was sunk costs by then.  No need to record the complex chain of transactions by which the facility was separated out from what became Centrica, passed through various hands, and eventually was bought back by Centrica to become part of their complex and quite cleverly managed portfolio.  (Just in case anyone thinks I have a down on Centrica, read back through the Centrica-tagged posts by clicking on the label below: you'll find I used to have a high regard for them.  It's their recent subsidy-farming manifestation I dislike.)  Suffice to say, Centrica ran Rough quite intelligently on an open-access commercial basis for many years.  Over time, seasonal storage (pump in for 180 summer days, then pump out across the winter period) became less attractive in the face of much more flexible new (and smaller) onshore gas storage facilities, plus increasing access to a big surfeit of storage capacity on the continent (another long story) via two big cross-channel pipelines, plus burgeoning LNG import capacity of a very flexible nature.  Even then, Centrica was able to respond with clever, more flexible storage packages which they delivered via use of Rough.

Eventually as the beast grew older, they needed to think about how long it would last.  There was a small explosion at one point, and other old-age mishaps.  Ten years or so ago, they started angling for government money, firstly to build more storage, then to bail them out at Rough itself.  They started spinning yarns about safety, and how much new drilling would be required to replace the old wells, and how only a subsidy would allow them to do this, and how we'd all freeze in winter if they closed it down.  They didn't convince anyone, so five years ago they shut it down, saying they would pump out the rather large amount of "cushion gas" - the minimum inventory a gas storage facility requires to operate at all - and that would be the end of it.  Amazingly enough, once again, it turned out that UK plc managed quite nicely without Rough, thank you very much.  The wonders of the free market, which was comfortably delivering all the necessary seasonal flexibility without any subsidy whatever.

More recently, Centrica somewhat unexpectedly started hinting that all might not be over at Rough.  First, they suggested it might be converted for CO2 storage ... then (as hydrogen started to become all the rage) for hydrogen storage - all somehow needing a big subsidy (because, of course, it's all totally uneconomic).  And there was everyone believing they'd pulled the plug forever / it was rickety and unsafe / etc etc.

Now ... it turns out they think they can press it back into service as a regular natural gas storage facility - by October!  FFS!  They've just obtained two of the permits they need to be able to do so - and, needless to say, are in intense negotiations with the ever-gullible Civil Service for what public money is going to be sent their way for coming to the rescue this winter, when Putin's punishment reaches its wintry worst.  Inventing a whole new rationale - a strategic reserve of gas (equivalent to a whole couple of days' worth to start with, maybe rising to 10 days' worth with a big refurb job.  10 days, just think ...)  Well, fair to say, times are different now. 

We can only hope someone in Whitehall is playing back to Centrica its bullshit statements of many years, and giving them a very hard time.  Somehow, though, I doubt it.



Elby the Beserk said...

Pre-privisation.... my ex and I bought our first house
in Oxford. Old railway worker's cottage, two up two down with a kitchen extension. Front door onto pavement, back onto a tiny yard, then a meadow. Back in the day, the GWR line into Oxford ran right behind these yards. Now moved well away.

No gas. Gas pipe in but shut down. No gas appliances. In fact, the house was a wreck which my brother and I giutted and rebuilt. Go down to the Gas showroom in Oxford, to get re-connected (cross my heart and hope to die. This is a true story). Ah, they say - do you have a gas appliance we can connect you to. No we say, and then try to buy a cooker. Is your gas re-connected, they ask. No we say. We can't have it re-connected without an appliance.

Ah. Well, we can't sell you an appliance unless it's already re-connected.

Again. God Strewth.

Three days of banging heads together, we finally got the cooker and we're reconnected. Bureaucracy on a level the Soviets would have applauded.

There was a very good reason for the privatisation of utilities. The above being one of many.

Elby the Beserk said...

1978. £11k

Last time I looked - sold for £495,000. Cycle ride up the canal to the station and Paddington in no time at all. Oxford is now a dormitory suburb of London.

Hey ho.

Old Git Carlisle said...

Surely any possible expenditure on Rough Would have to compete against more flexible extra LNG storage which I would guess would be order order of magnitude less and be more flexible.

Did enjoy trip to Rough with other Grid controllers we were to go on one chopper but someone saw implication of us all of us possibly being taken out at same time so were split up . Theory was that our deputies had taken out contract!!!

Nick Drew said...

Yes, but three orders of magnitude smaller in capacity!

All depends upon how functional the existing kit remains. Obviously we've been lied to, comprehensively; so who can guess?

Also, the cushion gas is a bit of a mystery. Over the past 5 years they've blown down more than they said was there in the first place. OK, maybe just lucky on the reserves that were in place

but maybe more porkies there, too

and how they gonna top it up (first, new cushion gas, then actual working inventory)? Relying on short-term LNG surpluses from time to time, I guess. Expensive, though. Doubtless they'll say HMG has to pay

Matt said...

Thanks ND. I'm with you, I expect an announcement shortly where taxpayers money is needlessly spunked on storage that won't be filled in time for winter.

Caeser Hēméra said...

It's a shame we didn't have a hefty large amount of gas stored, given the current situation, it would make for an excellent bargaining chip with the EU.

Fairly sure Germany would wind Macron's neck back in if it meant being toasty this winter.

Bill Quango MP said...

One theory for the decline in high street pubs between 1975 and 1985 was the advent of reliable, cheap, indoor heating and double glazing.

Storage heaters out.
Wood frame, single pane, out.

Fully fitted Carpets - in
Double glazing and PVC doors - in
Comfy sofas - in
Central heating - in

The theory is, heating and eating at home was so expensive, especially in the 1970s 1980s inflation and interest rates, oil crisis, era, that It was cheaper for people to go to a warm pub and drink, than it was to stay at home in a cold, damp, poorly illuminated house.

The gradual demise of the high street public house with the advent of central heating. Ready meals. Home brew. Colour TV. Fitted carpets. Home decor.

Who knows?
I suspect taxation and the general social anarchy, football hooliganism, and Terror attacks, plus thereturn of cinema, multiplex, fast food, pizza, kfc, mcD’s, played an equal or higher part.

The next wave of pub closures was linked to home alcohol consumption vis supermarkets. Which is effectively the same argument. Home was a decent, warm, place to be.

The smoking ban, inexplicably, has no official data to say if it directly closed the 11,000 pubs that vanished very quickly following the introduction.

Both for and against publish the same figures that prove the ban did/did not close thousands of pubs. The argument in favour of it having no overall effect was the big increase in pubs serving actual food. And the increase in non smoker family business, with retention of most of the banished smokers who used the outdoors space.

Will the current 1970s help the pubs once again? Cheaper to have a pint of Rishi’s highly taxed beer in the local, than switch the heating and lights on at home.

We will find out for sure in a few months.

Don Cox said...

The introduction of juke boxes in pubs can't have helped them. You can't have a quiet chat with loud rock music (or worse) playing.


dearieme said...

Don, you are a man after my own heart. I've never been a great pub man but when I have been in one it's been to chat to pals or to a pretty girl. Muzak is the enemy of socialising.

On the other hand I do like beer gardens. But we were driven out of one lately because the muzak from the bar meant that I couldn't hear my wife speak even outdoors.

Joe Public said...

Some interesting observations you made, especially in your original 2017 article.

".... only a few years after commencing production, (Amoco) sold it (at a very handsome price to the old monopoly British Gas) ..."

At the time of Rough's sale, it was to the British Gas Corporation, a good old nationalised industry arguably its greatest strength being that it was a monopsony.

Hindsight can be a wonderful thing. 2017: "Seasonal storage is not much wanted these days either - the spread between summer and winter wholesale gas prices is at an all-time low, which signals as much."

Many folk must now regret not having Rough's working capacity of ~34.1TWh available to add to our existing ~17TWh of conventional storage plus ~13TWh of LNG storage.

If approx 2 years ago we'd have known Rough was to be available, there might, just might, have been additional capacity into which to dump others' excess when there was a glut of natural gas & prices halved vs the previous 12 months.

" ... a strategic reserve of gas (equivalent to a whole couple of days' worth to start with, maybe rising to 10 days' worth with a big refurb job. 10 days, just think ...)"

For context, Britain has just 40 minutes' worth of peak winter-day electricity storage capacity if full, but having a discharge rate of ~5GW. If full, Rough could discharge at 20.6GW for 67 days.

Elby the Beserk said...

"The theory is, heating and eating at home was so expensive, especially in the 1970s 1980s inflation and interest rates, oil crisis, era, that It was cheaper for people to go to a warm pub and drink, than it was to stay at home in a cold, damp, poorly illuminated house."

Hence, the "Snug" a bar in which when I were a lad always had a coal fire, even if small, and old ladies drinking Milk Stout. A la Corrie.

Nick Drew said...

Joe - an interesting series of pull-quotes and observations

do you have a synthesis which draws them all together into some conclusions? I can add a few more points to your mix.

- no nation has any stored electricity capacity (qua electricity). Today's grid-scale batteries are trivial as regards strategic reserve, each giving only an hour or so of draw-down. (Their strategic use at present is instantaneous system-balancing; the rest is tactical / commercial via within-day price arb)

- 'reserves' in electricity are of course reserves of fuel (and water, in the case of hydro), coupled with spare gen capacity

- Rough is a long way from being restored to its previous max, if indeed it ever will be, or can be

- UK is better placed than most nations for the coming winter (Spain is the other), Rough or no Rough. In effect, the replacement for Rough was the slew of new LNG import terminals, developed entirely without subsidy by companies investing their own money, based on rational look-ahead forecasts of naturally declining UK indigenous resources

- rightly or (as we might now say with hindsight) wrongly, no nation in Europe was running its strategic energy considerations through a stress test of Russia pulling the plug. I can tell you that the IEA ran a careful assessment of this in 1995 - I was on the advisory panel - and concluded that every major nation of Europe could survive the interruption of its biggest single gas source for a single winter. (Ireland was one of the few that couldn't). However:

(a) "surviving" doesn't mean "thriving"!
(b) they specifically didn't look at Russia interrupting all nations simultaneously: it was considered one nation at a time

On this blog we find ourselves periodically debating the "optimal" mix between free trade / efficiency, and self-sufficiency / gross over-capacity / "strategic" considerations. There's no "scientific" answer to this question. It's fair to say that, at the start of many a war, the "surprised" party wonders if it might not, in retrospect, have done more pre-emptive preparatory work. There's never any votes in it, though

Nick Drew said...

first bullet should of course read:

- no nation has any stored electricity capacity (qua electricity reserves)

Joe Public said...

Thanks for your detailed response, Nick. 👍

Anonymous said...

ND - "rightly or (as we might now say with hindsight) wrongly, no nation in Europe was running its strategic energy considerations through a stress test of Russia pulling the plug"

Presumably because no one thought the US (which drives/funds/arms Nato - yes I know other countries have weapons industries) would go to all lengths to decouple Europe from Russian energy. Europe, of which we are part, and Germany in particular as the major industrial power, is the biggest loser so far from this war. China and India and to an extent the US are the winners.

The current head of the CIA, Bill Burns in 1995 (he was in Moscow then)

"Hostility to early NATO expansion is almost universally felt across the domestic political spectrum here."

and again in 2005 - reporting to Condi Rice

"Ukrainian entry into NATO is the brightest of all redlines for the Russian elite (not just Putin). In more than two and a half years of conversations with key Russian players . . . I have yet to find anyone who views Ukraine in NATO as anything other than a direct challenge to Russian interests."

Nick Drew said...

Anon @ 11:37 - I really hope several of our BTL commenters have carefully read what you cited from Burns

because Burns has been in post as Biden's CIA appointee since March 2021

in other words, Putin knew there'd be Burn's strong voice opposing Ukr admittance to NATO, in the new US regime of Biden, all through 2021 while Russia was gearing up for invasion

read, mark, learn ... and stop telling us Putin feared imminent NATO admission of Ukr.

As regards EU admission, well I'm not interested; Putin can stuff it. As opined yesterday, sovereign nations must be free to join any economic bloc they like. If he doesn't want Russo-Slavs thriving outside his yoke, we can understand his worries, but tough titty on that one

Anonymous said...

ND - my assumption is that whoever runs Biden took on board what Burns said, and said "excellent! This is just what we need to stymie NS2 and decouple Russia from Europe!".

Nick Drew said...

well I understand the logic (if you are positing an all-powerful, Manichaean neo-con (?) / Hilary / etc force at work): but

(a) in my experience the voice of the CIA generally carries a lot of weight in the White House, outside of aberrant Trump-times

(b) do you have any hard evidence whatever, that what you are suggesting was indeed the thrust of the Biden administration's Ukr policy between inauguration and invasion?? - whomever you believe to be the puppet-master

(BTW I have no Hunter-Biden Ukr-theory whatsoever)

Nick Drew said...

PS, putting an end to NS2 should have been Germany's policy! As I think they now agree.

Anonymous said...

I have no idea who runs Biden - I presume the same people who sabotaged Trump as much as possible including disobeying his orders re troops in Syria - I only know he's not the motive force behind either US foreign or domestic policy.

Why shouldn't Germany get cheap gas from Russia? This whole disaster was so easy to avoid, which is why I think it was deliberately manufactured.

Given the German Green policies, where else will their industry get energy from?

E-K said...

Nick @ 12.52

Fine on backing Ukraine joining any bloc it likes.... but wouldn't it have been sensible for the EU (indirectly us) to be independent of Russia's gas and Ukraine's food first ?

Anonymous said...

I wonder how long it'll be before our weapons arrive back on home soil? Probably via these guys

We want to defend the Ukrainian border but we can't defend our own.

Old Git Carlisle said...

Who would build a major LNG site a fess thousand feet away from 1000 tons of decaying high explosives .

Look up the good wreck Richard Montgomery in the Nore.

Anonymous said...

This is what you call "full-spectrum dominance" - these sincere and well meaning people who quote as a neutral arbiter and believe NATO would run a mils from an ally committing war crimes. From the chat here

​I'm currently in a discussion with a friends friend-Who said that Ru's war crime was not as servere as the Ukrainian is-So I posted some links from an organization.

​It is in his right to have this standpoint but I KNOW he's wrong-I wish I knew how to convince him that he's wrong. I can't so I leave it here and continue with my life.

​The organization I found was The open society foundation and their article: How to Hold Russia Accountable for War Crimes in Ukraine

​One thing is for sure, if UA were ever found guilty of war crimes most of Nato would pull away from helping them, they would never stand beside an enemy of humanity that is a guarantee

​I think so too-Well the Ukrainian is not 100 % innocent-There are being committed war crimes on both side-But Ru is in the lead with several meter.

​The war crime UA may commit is not as servere as the war crime Ru is committing-That is what I wanted to say

​Totally understand what you are saying. In every war there are war crimes committed by both sides of the equation but the line is when those war crimes are done against humanity

​That is the line to not cross with Nato

​Here we are talking about not only war crimes but crimes against humanity hence genocide committed by Russia, there’s no comparison nor excuses that can be made when it comes to what Russia is doing

I remember the days when I thought Bill Browder was a neutral observer of Russia, God forgive me.

dearieme said...

"Who would build a major LNG site ...?"

Who would give planning permission?

Don Cox said...

The best way to store electricity would be to use it to extract CO2 from the air and Hydrogen from water, then combine them to make hydrocarbons. You can store a lot of energy in a tank full of petrol/gasoline.

Carbon Engineering have a plant that does this.


E-K said...

No answer.


Nick Drew said...

Kev, if you're looking for an answer to "wouldn't it have been sensible for the EU ... to be independent of Russia's gas and Ukraine's food first ?"

... then one might start with the obvious point that Ukraine was never admitted to the EU

oh sure, it's been talked about, and some preliminary steps taken - as with Turkey. People talk about a lot of things - sometimes hypothetically, sometimes irresponsibly, sometimes prematurely, sometimes emptily

if the 'zero carbon' plans of the EU are to be taken at face value, the EU was indeed planning to be independent of Russia's gas, haha!

and what your strategic line of thought has got to do with Ukraine's own food production, I can't really think. Are you saying the EU should have reasoned: "OK, if we let Ukr join our union, Russia will naturally block their grain and sunflower exports and bomb their ports, so we'd better wean ourselves off Ukr agri-products before we announce they are to be admitted" - ??

given how twitchy the Chinese are to how other people "talk", what pre-emptive "accommodations" to China do you recommend? Because if you show that degree of "sensitivity", I think they'd be pleased to issue you with a very long list

Nick Drew said...

of course, if you were looking for an answer to a different question ... (!)

Anonymous said...

Off topic, but I had no idea how much NATO tactics had been influenced by Gerry Adams and Martin McGuinness, judging by events inside Russia.