Page last updated at 12:09 GMT, Wednesday, 5 November 2008

500m gas caverns project stalls

Gas storage facility (c)Portland Gas
Fourteen gas chambers will be constructed a mile and a half down

A 500m project to create 14 gas storage caverns 1.5 miles (2.4km) under the Dorset coast has been delayed due to "challenging market conditions".

The natural gas chambers would house one billion cubic metres (1,000 billion litres) of gas - 1% of the UK's total gas demand - underneath Portland port.

Portland Gas said it had decided to "suspend its current joint venture funding process".

The caverns are still due to be ready for the winter of 2015.

But Portland Gas said it would require approximately 12m of further funding next year to meet that target.

A company statement said: "A consequence of the suspension of the joint venture funding process is that the target date for first gas has been revised to end quarter one 2012 (from quarter 3/4 2011), but achievement of full capacity is still anticipated for the winter of 2015."

Construction at the Upper Osprey former naval base was due to start this year.

It will be the largest onshore gas storage facility in the UK.

The project is possible due to thick Triassic rock salt under Portland.

We anticipate that market conditions will improve in 2009
Andrew Hindle, Portland Gas

The 220 million-year-old rock can be dissolved safely using seawater to create impermeable caverns to store natural gas.

The project is expected to bring more than 2m investment for local projects over the next two years as well as creating 25 permanent jobs.

Andrew Hindle, chief executive of Portland Gas, said: "The directors remain committed to full development of the Portland Project.

"The Portland gas storage facility is recognised as of national importance and could be providing 5% of the UK peak daily gas demand in the latter part of the next decade.

"During the funding process Portland Gas recognised that the prices generally being paid for gas storage assets in the market had declined.

"Therefore to retain its target of at least a 50% interest in the Portland Project alongside new joint venture partners it would be necessary for it to make a debt and equity contribution to the project.

"The global 'credit crunch' has all but closed off the likelihood of achieving this target for the time being.

"We anticipate that market conditions will improve in 2009."

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