European Storage Closures Loom
Operators of European gas storage facilities must prepare for a wave of closures over the coming five years as the outlook is bleak, delegates heard at the European Gas Conference in Vienna January 25.
This has been a very good winter for withdrawals, thanks to the long spell of cold weather, but this does not generate enough income to allow optimism in the medium term. German utility Innogy has already closed down one plant in recent years, as the cost of modernising it was not justified by the likely revenues.
Low demand for gas in Europe generally has depleted gas pipelines so that there is little concern about available capacity to meet peak day demand. This has led to very narrow differences between summer and winter prices, which determines how much shippers are likely to pay for storage. Uniper's storage manager Michael Schmoltzer said this spread was "putting us under a lot of pressure." In some cases the revenue did not cover their operating costs.
While there have been very high price differences this winter of around €10/MWh ($3.15/mn Btu) between European hubs in Austria and Italy, it is the seasonal difference that matters when shippers book annual capacity, and that is missing, said OMV's storage manager Erik Holzer.
So while storage facilities were well stocked ahead of this winter – there is no talk yet, except possibly in southeast France, of running into difficulties meeting gas demand – this was achieved at a very low price.
Holzer said the upcoming storage year, starting April 2017, had one of the lowest summer-winter spreads, so closures would happen: "There is no way around this," he said. "I am surprised there have not been more, and I know some colleagues are close to making those decisions in the next five years."
Germany's largest facility, Rehden
(Credit: Astora)
As well as storage there are other forms of flexibility too, including deliveries of LNG, and from producers of which the biggest is Gazprom. It has been delivering a lot more gas to Europe than usual over the winter to meet higher demand; indeed Gazprom CEO Alexei Miller said it exported 179.3bn m3 to Europe in 2016, an increase of 12.5% over 2015.
Storage facilities were built to take advantage of low consumption in summer and the ability to inject gas for use later on: the much more expensive option would have been to build bigger pipelines to meet the peak-day demand year-round.
William Powell