EU Storage 'Undervalued': Industry Group
Low temperatures across Europe in the second half of March led to heavy use of storage capacity but the operators are not properly rewarded, according to EU industry group Gas Infrastructure Europe (GIE).
In a statement March 20, GIE board member Lubor Veleba said that "gas storage facilities in many European countries provide more than half of daily gas consumption on cold days. I regret, however, that storage operators are often not fully remunerated for their role in security of supply.” Veleba is managing director of Innogy Gas Storage in the Czech Republic.
GIE said the heavy use of gas storage this year highlights the need for a continued discussion at the European level. Under the evolving market conditions and in the absence of full remuneration of storage operators, there is a risk that in future gas storage may not be able to deliver required filling levels.
Gas storage users typically value storage on long term seasonal gas price spreads, rather than day ahead or security of supply considerations.
The cold spell in March followed a spell of unseasonably cold weather in the second half of February when effective use of gas transport, storage and LNG terminals was essential in delivering energy to all EU citizens and keeping the European houses warm, GIE said.
GIE president Jean-Marc Leroy said that the "situation highlights the strategic importance of a resilient gas system where all the main gas infrastructure operators of the gas value chain play their role. However, the winter period is not over yet and another cold spell this week is capturing our full attention.” Leroy is senior vice president for infrastructure at France's Engie and from 2009 to 2015 headed its gas storage business Storengy.
He is not alone. At its results briefing March 8, Uniper CEO Klaus Schafer argued that Germany needs to adjust the regulatory framework for gas storage so that it’s possible to operate them economically and to avert the risk of storage facility closures.
Whereas LNG, another source of peak supply, can cross the world for a higher price, gas injected into storage has to be used at a local or regional level. According to AGSI+, the gas stock level platform operated by GIE, daily storage withdrawals reached 11.4TWh (1.06bn m3) February 28, their highest since 2011. In some countries, for example in Germany, more than half of its daily consumption was sourced from gas storage.
As of March 18, facilities were about one-fifth full (21.7%), the lowest level since 2011, so traders will be watching inventory levels closely until the end of winter, GIE said.
It is possible that the very high prices seen for short periods this winter will lead traders to book capacity in order to capitalise on the wildly fluctuating prices within winter weeks, rather than on the very thin difference between summer and winter gas. While the EU is spending money on gas interconnectors to improve security of supply for countries in eastern Europe, traders dislike regulatory interventions such as strategic stockbuilding as they can distort the market. The UK government would rather leave the market to put a value on security of supply, than invest in rehabilitating Rough which, before it effectively closed down last year, was the UK's biggest storage facility and one of the biggest in the EU. Withdrawals from Rough at 12.30pm March 20 were a meagre 6mn m3/d, but were zero when needed during recent cold snaps.
Reuters reported March 19 that the UK government's business and energy department, at a meeting with gas storage operators March 16, rebuffed their calls for an urgent review of the country’s gas storage capacity.