Centrica is in discussions with the UK government to secure support for enhancing the Rough gas storage site. This site, which is the largest gas storage facility in the UK, could play a crucial role in stabilizing energy prices.
Centrica’s CEO, Chris O’Shea, mentioned they are pursuing a “cap and floor” agreement for Rough. This means that if the revenue drops below a certain point, consumers would help cover the loss, but there would be a limit on earnings as well.
During the announcement of their annual results, O’Shea noted that talks with government officials are progressing positively. For the year ending December 2024, Centrica reported adjusted operating profits of £1.6 billion, a decrease from £2.8 billion in 2023, a result of a more stable market after years of volatility and high prices.
The company’s shares surged by 8% following their announcement of an additional £500 million share buyback plan, raising the total to £2 billion by year-end (subject to market conditions). They also increased their full-year dividend by 13%, setting it at 4.5 pence per share.
The Rough gas site, located beneath the seabed off Yorkshire, is capable of holding enough natural gas to meet the UK’s demand for 10 days. It was closed in 2017 due to low profits but partially reopened in October 2022 as a result of the global gas supply issues arising from Russia’s invasion of Ukraine.
Centrica aims to invest around £2 billion in expanding and redeveloping Rough to also accommodate hydrogen storage, anticipating a future increase in demand for cleaner fuel. O’Shea stated that this expansion could generate “thousands” of skilled jobs.
Storing more gas at Rough could serve as a “national insurance policy” to mitigate price spikes for consumers and lessen the UK’s dependence on unstable global markets, he added.
In recent months, the Rough site has faced losses, and Centrica has indicated it is not expected to be profitable this year. O’Shea expressed that a business unable to make a profit cannot sustain itself over time.
Centrica also has interests in the UK’s nuclear energy sector and remains interested in the Sizewell C project, contingent on favorable terms. EDF, the project developer, along with the UK government, is searching for external investors and plans to make a final investment decision by June.
O’Shea emphasized that any investment decision should consider the associated risks and potential returns. A government official stated that while the future of the Rough storage site is Centrica’s decision, they are willing to discuss proposals for gas storage as long as they represent good value for taxpayers.