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UK's Centrica may have no Rough obligations for 2017-18

21 Feb 2017, 2.18 pm GMT

UK's Centrica may have no Rough obligations for 2017-18

London, 20 February (Argus) — Centrica delaying the restart to Rough injection capacity has raised the possibility of the utility not being required to offer capacity for the 2017-18 storage year, especially if there is the risk of a "systemic failure".

Centrica has delayed the expected restart of injection capacity until at least the end of June from March-April.

It previously said it would not restart injection operations before 16 May if there was "an unacceptable risk of a systemic failure for the Rough wells".

Centrica expects to complete calliper and well testing by 30 April and finish analysing the data by 30 June, when it plans to "update the market" on Rough storage capacity, the firm said last week. Rough injection capacity will not be available during this period.

Last week's update was part of Rough's commitment in a consultation document from 15 December to detail by 28 February how much capacity it expected to be available for the 2017-18 storage year.

Centrica proposed in the consultation not having any capacity that it must offer to third parties, if "it may be expected that Rough will not be capable of injection operations until on or after 16 May 2017".

If capacity becomes available later it would offer unbundled capacity aligned with the site's expected capabilities. Centrica would have "to consider how to manage its contractual obligations" for customers that have already acquired capacity, including cancelling or renegotiating long-term deals or buying back capacity.

Possible but real

Centrica said in December that it would need to take into account "the mode of the well failure" in determining whether there was "an unacceptable risk of systemic failure" and not returning to injection operations before 16 May.

Four wells of the 12 tested by 6 February failed pressure testing, while two others required remedial work.

Centrica did not detail the mode of the well failures or whether any of these presented "an unacceptable risk of systemic failure".

The firm was not immediately available for comment today.

Rough "faces a possible (but real) risk" that it has no physical injection or withdrawal capacity in the 2017-18 storage year, Centrica said in its December consultation.

The firm was "reworking the blow out probability statistics in the light of what is now known about the B11 and C6 failures", Centrica said in December.

If the Centrica board decides that "the asset cannot be proven to be safe to operate before 16 May 2017" the firm will amend its application to Ofgem to reflect Rough's physical capability to be zero for the 2017-18 storage year.

Varied undertakings

Centrica is obliged to offer Rough capacity to third parties under its varied undertakings.

The UK's Competition and Markets Authority (CMA) decided last year to introduce an adjustment mechanism that would allow UK regulator Ofgem to vary the capacity obligations if Centrica can demonstrate that there is an issue that "will have a substantial impact on Rough's capacity".

The December consultation was part of this process for the obligations for the 2017-18 storage year.

Storage spreads

NBP forward contracts have mostly only priced in Rough injection capacity being unavailable in the second quarter and the possibility of lower stocks for the 2017-18 winter.

The NBP second-quarter 2017 market slid and expanded its discount to the front-winter market last week after Centrica said Rough injection capacity was not expected to be available until at least the end of June. The third-quarter 2017-winter 2017-18 spread also widened late last week but not as much, reflecting the possibility of some injection capacity being available in the second half of the summer.

There was also support for the winter 2017-18 contract with stocks likely to be lower than previously heading into the next heating season, even if Rough is able to restart in the third quarter.

But there were only limited moves on seasonal spreads further along the NBP curve, suggesting that there were few changes in expectations of Rough capacity beyond the 2017-18 storage year.

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NBP summer '17 widens disount to winter '17 p/th

NBP 2Q17 widens discount to winter '17 p/th

2Q17 basis moves most with no Rough injections p/th

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