Friday, 6 November 2009

Crown Estate’s high rents ‘pose a threat’ to Hewett gas storage project

A billion-pound project to develop Europe’s largest gas storage facility in the North Sea is close to collapse because the Crown Estate, the owner of the UK seabed, is obstructing its development, The Times has learnt.
The project, which is led by ENI, the Italian oil company, to convert the Hewett gasfield in the North Sea into a storage facility would more than double Britain’s storage capacity from a supply of 15 days to at least 30 days.
But the Crown Estate, which owns the seabed out to 12 nautical miles, has been accused of trying to extract “monopoly rents” for the project, forcing ENI to consider dropping the plans, according to industry insiders.
ENI declined to comment, citing commercial confidentiality. But Roddy Monroe, chairman of the Gas Storage Operators Group, which represents ENI as well as some of Britain’s biggest energy companies, including EDF, National Grid, E.ON, Centrica and ScottishPower, said that the Crown Estate’s position in negotiations over a string of storage facilities had been “incredibly frustrating” and was a threat to UK energy security.
“The Crown Estate is effectively a monopoly,” Mr Monroe said. “If you want to develop a storage site, their position is simple: ‘We are going to charge you an arm and a leg’. There is legal scope to challenge their position through the OFT [Office of Fair Trading].” He added that the situation could force up consumer prices.
The Crown Estate, which holds property owned by the Queen but pays surplus revenues to the Treasury, is one of the largest property owners in Britain, with a portfolio worth £6 billion.
Although Mr Monroe declined to comment on the details of the dispute, energy industry insiders said that, in present negotiations, the Crown Estate was seeking to more than double the charges it levied on offshore gas storage operators.
Centrica, the owner of British Gas, and a company called Stag Energy are also in negotiations with the Crown Estate about gas storage projects.
Gas can also be stored onshore, but the largest available sites are former offshore gasfields in the North and Irish seas, into which the fuel can be injected for long-term storage.
If built, the Hewitt project could contain up to five billion cubic metres of gas, more than doubling Britain’s storage capacity of 4.5 billion cubic metres. The largest existing storage site is the Rough gas facility operated by Centrica, which holds about 3.5 billion cubic metres, or more than 75 per cent of total UK capacity.
Britain is the world’s fourth-largest gas consumer after the US, Russia and Iran but has less storage capacity than any other large EU country. Germany has 99 days and France has 122.
The shortage has raised concerns about energy security in the event of external supply shocks, such as the dispute between Russia and Ukraine earlier this year. The lack of storage also forces up prices because utilities cannot stockpile enough gas when it is cheap, usually in the summer months, to meet demand during the peak winter period.
With North Sea gas production in steep decline, this winter Britain will have to import a record 50 per cent of its gas supplies, up from only 27 per cent in 2007.
On February 20, during the dispute between Russia and Ukraine, the volume of gas being stored in Britain hit a low of 1.2 billion cubic meters, not enough to meet three days of average gas demand during unseasonably cold weather.
A spokeswoman for the Crown Estate rejected the concerns. She said: “Gas storage is a commercial activity carried out by commercial organisations and, as the owner [of the British seabed], we are entitled to a rental charge.
“All net revenue is returned to the Treasury for the benefit of the UK taxpayer.”
Mr Monroe said that offshore projects would be cancelled unless the organisation adopted a “more investment friendly approach”.
The Crown Estate has a mandate to maximise revenues from its assets but also not to exploit its monopoly.
He said: “This is a huge windfall for them. The Crown Estate offers no value. A landlord has an initial purchase price and a service or maintenance charge — but not in this case. It’s a huge frustration. Without gas storage you will have big price spikes which will be very damaging for consumers.”
Malcolm Wicks, the former Energy Minister turned adviser to Gordon Brown, said in August that the Government might have to act to increase gas storage if companies did not act on their own to boost supplies.
Source: The Times

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