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Centrica has said it is in talks with the UK government to secure financial support to expand and redevelop the country’s largest gas storage site, arguing that the move could help stabilise prices.
Chief executive Chris O’Shea said the FTSE 100 energy group was seeking a “cap and floor” deal for the Rough field in the North Sea. Under such an arrangement, revenue for the site would be topped up by consumers if it fell below a certain level, but would also be capped on the upside.
Speaking as the company unveiled its annual results, O’Shea said the owner of British Gas was having “a constructive conversation with the government at the highest levels” about a potential deal for the site.
Centrica on Friday reported adjusted operating profits of £1.6bn for the year ending December 2024, down from £2.8bn in 2023, after the business environment “normalised” following volatility and high commodity prices in recent years.
The company’s shares climbed 8 per cent after it also announced a £500mn increase to its share buyback programme, which would take it to £2bn by the end of this year, subject to market conditions. It also increased its full-year dividend for 2024 by 13 per cent, to 4.5 pence per share.
The Rough gas storage site, 2.7km under the seabed off the coast of Yorkshire, can store enough natural gas to meet the UK’s needs for 10 days. It was closed in 2017 because of poor returns and then partially reopened in October 2022 after Russia’s full-scale invasion of Ukraine stretched global gas supplies.
Centrica wants to invest about £2bn to expand and ultimately redevelop the site so that it can also store hydrogen because it expects demand for the cleaner fuel to rise as the UK moves away from fossil fuels. O’Shea said the expansion could create “thousands” of highly skilled jobs.
“By storing more gas, Rough can act as a national insurance policy and help prevent price spikes to consumers and reduce reliance on increasingly volatile global markets,” he added.
The site was lossmaking in the second half of 2024 and Centrica said it would not be profitable this year either, with O’Shea warning that “no business that can’t make a profit can be sustained over time”.
Centrica, which also owns a stake in the UK’s nuclear power fleet, confirmed that it is still interested in investing in the Sizewell C nuclear power plant project if conditions are right.
Developer EDF and the UK government are looking for external investors for the project in Suffolk and are aiming to make a final investment decision in June.
“With any project you look at the risk and return,” said O’Shea. “The higher the risk, the higher the return; the lower the risk, the lower the return.”
A government spokesperson said while the future of the Rough storage site was a commercial decision for Centrica, it was “open to discussing proposals on gas storage sites” as long as they provided value for money for taxpayers.
