Underground natural gas storage in the UK: Business feasibility case study

Esther Escobar*, Gerardo Arteaga, Alexander Kemp

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingPublished conference contribution

6 Citations (Scopus)


Currently the United Kingdom has the lowest natural gas storage rate in Europe although this is set to increase. The UK Government is committed to an increase in gas storage infrastructure by facilitating its construction, through reforms to the planning and licensing regime. The Government considers that the key to security of supply lies with a regulatory framework that provides incentives for commercial storage and with liberalisation of the gas market in Europe. However, there have been growing doubts from investors regarding the profitability of projects promoted by the UK for underground gas storage, leading to possible delays in some of the planned gas storage schemes that have been announced, thereby compromising the security of gas supply in the UK. The purpose of this case study is to investigate and determine the economic feasibility of a gas storage project in a depleted gas reservoir in the UK. The study analyses economic considerations in a hypothetical depleted gas reservoir-based storage facility. An economic valuation was carried out by means of seasonal values, also known as intrinsic values, using pairs of natural gas forward prices. Subsequently, a project cash flow, linking technical and economic variables, was built to compute the project's NPV and to perform stochastic optimisation and forecasting modelling. The research also involved a statistical analysis of the UK natural gas market from 1998 to 2009. Project outcomes established that in order to achieve the profitability of the project, relatively high price spreads are required. The analysis of the UK market shows that adequate spreads have scarcely occurred in recent years. Companies may thus delay the development of gas storage facilities and the UK government may have to offer incentives to procure the desired results.

Original languageEnglish
Title of host publicationSociety of Petroleum Engineers - 73rd European Association of Geoscientists and Engineers Conference and Exhibition 2011 - Incorporating SPE EUROPEC 2011
PublisherSociety of Petroleum Engineers
Number of pages19
ISBN (Print)9781617829666
Publication statusPublished - 1 Jan 2011


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