UK Gas Storage Capacity at Risk, Sparks Price Rally

A potential technical problem identified during a routine inspection could reduce capacity at Britain's biggest storage site Rough by 30 percent, potentially tightening supplies and fuelling sharp price gains.

"A potential technical issue has been discovered which, if verified, would limit the amount of stock in the Rough reservoir to a range of 29 TWh to 32 TWh," operator Centrica Storage Ltd said in a market message on Wednesday.

That equates to a 30 percent reduction in storage capacity or a loss of 1 billion cubic metres of gas supply, said Trevor Sikorski, analyst at London-based consultancy Energy Aspects.

Injection and withdrawal capacity from the site remain unaffected, according to Centrica, which said it is investigating the issue and will update the market when more information becomes available.

The announcement drove British gas prices higher on Wednesday as traders reacted to the possibility of reduced gas withdrawals next winter from the facility, which is Britain's biggest gas storage site.

UK natural gas prices for the first-quarter of 2016 rose 4.24 percent or 2.15 pence to 52.90 pence per therm on the possibility that there will be less gas available from Rough.

"It seems to have scared the market - but to put it in perspective, it means we could lose less than 4 to 5 mcm/day (million cubic metres a day) withdrawal in winter, which is not that much really," a trader said.

Sikorski said the scale of the reduction could be even bigger.

The season for gas withdrawals from storage lasts about 5-6 months.

"Depending on how you define the withdrawal season, it could be a reduction of 6.7 mcm/day. If you take it as 6 months long, it would be 5.5 mcm/day," he said.

Rough's maximum stock level hit in 2014 was 41.1 TWh, Centrica Storage said. (Reporting by Oleg Vukmanovic and Nina Chestney