A £500 million gas storage project designed to reduce volatility in UK energy prices has become the latest victim of the credit crunch.

Fundraising for the scheme, to create one billion cu m of gas storage in underground salt caverns beneath Portland, Dorset, has been suspended after the Portland Gas directors said they were unable to agree acceptable conditions with lenders.

Portland Gas was granted planning permission in May to build the facility, which would provide up to 5 per cent of the country’s gas at peak times.

The project, made possible by the thick layer of Triassic rock salt, which is 220 million years old and lies deep under Portland, would allow Britain to plan better for short-term fluctuations in gas supply as it becomes increasingly dependent on imports. When wholesale prices are cheap during the summer, gas could be pumped in for retrieval when prices rise during winter.

Andrew Hindle, the chief executive, said the fundraising had been suspended until conditions improved. Instead, he said, the company was seeking a strategic partner and would try to return to the credit markets next year.

He said the group remained committed to the project and would commit £2.5 million from existing cash reserves to continue with the development work through to next March.

Portland said its date for first gas being stored had been delayed from the end of 2011 to early 2012, with all storage space still on target to be available for the winter of 2015. The company plans to create 14 impermeable 100-metre high caverns to store the gas 1.5 miles underground.

It added: “The global credit crunch has all but closed off the likelihood of achieving this target [gas storage in 2011] and this factor, combined with cutbacks in longer-term capital expenditure by industry participants in the sector, has meant halting the current joint-venture funding process is in the best interests of shareholders.”

Britain urgently needs more gas storage to cope with seasonal fluctuation demand, which can lead to wholesale price spikes and ultimately higher prices for consumers.

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