ENERGY group ScottishPower is selling its underground natural gas storage project at Byley to the UK arm of German utility firm E.On in a [pounds]96m transaction.

The Glasgow-based group has also secured a 15-year storage contract for a substantial proportion of the planned capacity at the site in northern England, which gained final planning approval last year. It is thought that the deal will give ScottishPower access to about 30per cent of the storage at Byley.

Around six billion cubic feet of gas will be stored at Byley in up to eight underground caverns in Cheshire. The project, which is also known as Holford Gas Storage, was designed as a highly-flexible storage facility with capacity that ScottishPower has said would exceed its own requirements. ScottishPower can expect to make a profit of around [pounds]70m on the disposal after stripping out costs.

Charles Berry, ScottishPower's UK executive director, said:

"Having guided the project through its complex planning phase, we are delighted to have gained an excellent price for the asset and secured our longterm gas storage requirements in the UK. The sale option maximises shareholder value."

In a statement, E.On said its UK subsidiary planned to spend around [pounds]100m over the next four years to develop the facility.

The first phase of the project is expected to be operational by the winter of 2008 and E.On is anticipating final completion by 2010.

The UK is becoming increasingly reliant on imported gas as production from the ageing fields of the North Sea continues to decline. The change means there is a greater requirement for gas storage capacity.

ScottishPower said that access to reliable, high-deliverability gas storage was essential in managing its gas portfolio and meeting customer demand.

Shares in ScottishPower closed unchanged at 510p last night.