As households brace for a steep rise in energy bills in January, Britain is set to lose half of its gas storage capacity. Storage helps meet high winter demand with gas bought in the low-demand summer period. When supplies are disrupted due to weather or other external factors, it keeps homes heated and factories running. Without it, Britain must pay for gas whatever the market demands and households have no protection from high bills.
Rough, a depleted gas field off the Yorkshire coast, will close in April 2027, its owner Centrica says, unless the state agrees to a cap-and-floor arrangement. Under the proposed deal, bill payers would guarantee Centrica a minimum income, in return for a share of any profits above a cap. Ministers have yet to agree, but appear reluctant, with the minister Luke Pollard saying Rough “is not something that the government is choosing to invest in”.
Unite has urged ministers to consider nationalising Rough if no deal is reached. But this really should be the preferred option. Public ownership would cost less, since the state borrows more cheaply and needs no return for shareholders. In a crisis, the benefit of storage would reach the public as lower prices rather than windfalls for shareholders. Public ownership would also place decisions about when to fill and release gas in the hands of those accountable for the country’s security.
Strategic reserves are not unusual. The United States has kept a government-owned Strategic Petroleum Reserve since the oil shocks of the 1970s, and Quebec’s maple syrup producers keep a reserve to steady prices after poor harvests. Public ownership of gas storage is common in Europe — in Germany, Denmark, the Netherlands, Poland and Hungary much of the available storage is held by state-owned companies. In France and Italy the state holds large stakes in the main operators.
Privately-run storage makes money from the difference between the price of gas when it is injected and the price when it is extracted, which usually coincides with the gap between summer and winter prices. In theory, buying gas when it is cheap and selling it when it is dear helps steady prices across the year. In practice, storage pays mainly when that gap is wide, and the more storage smooths prices, the narrower the gap becomes. So the market provides only as much storage as keeps the gap wide enough to meet profit targets.
Private operators continuously weigh forward prices and the risks that might affect their profits. But some of the risks that matter most to the country fall outside of that calculation. An unexpected geopolitical event can cause a supply shock that pushes millions into fuel poverty yet give no price signal in advance to fill storage, so the market has little reason to prepare for it. That is why there has been a persistent gap between the storage the country needs and the storage the market provides.
The war in Iran and the closure of the Strait of Hormuz is a case in point. Over the summer, traders expected the strait to reopen soon, so gas for immediate delivery cost more than gas for autumn delivery. Filling storage early meant locking in a loss, so buyers waited and filling slowed sharply. The expected respite never materialised. Europe as a whole now enters winter with its gas storage at the lowest level for this time of year since records began in 2011, just as gas is at its most expensive since 2022. A strong El Niño has also raised the risk of a cold late winter.
Britain is especially exposed. It holds far less gas in storage, relative to demand, than its continental counterparts. Storage lets Britain keep gas it would otherwise export. Without it, Britain sends surplus gas to the continent in summer, often at a discount, and then competes to buy it back in winter. In March 2018, during the “Beast from the East” storm, Britain’s “within-day” gas price briefly rose to several times its normal level and there were fears that large industrial users would have their supply cut. Storage would have alleviated such anxieties.
So far, the government's strategy has assumed that having a diverse range of suppliers protects Britain from shocks and that using less gas over time will end its exposure to gas prices. But neither protected Britain when the Iran war broke out in March. Diversity of global supply matters little when a couple of big suppliers are shut down and as the climate warms, extreme weather will disrupt supply more often and make demand for gas harder to predict. Gas will continue to set the price of British electricity for years before renewables finally replace it. Britain's fallback is to draw on continental storage through the interconnectors, but that only works if Europe has gas to spare and this winter it does not. Domestic storage is the one tool that we can rely on when every external source fails.
Run as a strategic reserve a publicly owned Rough could be the foundation of a national gas buffer stock. As Britain moves away from gas, it is also the obvious candidate for large-scale hydrogen storage, which the government’s own plans call for. Nationalising it would give substance to ministers’ stated aim to “come off the fossil fuel roller coaster”.
Rough’s value should reflect Centrica’s own claim that, without state support, the asset is not financially viable. When Northern Rock was nationalised in 2008, compensation was assessed in exactly this way. Shareholders received none and their legal challenge failed all the way to the European Court of Human Rights.
Nationalisation is the first step. Rough is an ageing asset — public ownership would allow it to be modernised and expanded to suit the country's needs, as part of a coherent long-term industrial strategy. The government is already committing £500 million to a new hydrogen transport and storage network, it makes little sense to let Britain’s largest existing store close. Investing in Rough means restoring its full capacity and preparing it for hydrogen, safeguarding the hundreds of skilled jobs that depend on it. Public ownership leaves Britain better prepared for the next crisis.
