In previous years, a combination of expanded storage capacity and rising Norwegian, Russian and UKCS pipeline supply into Europe narrowed seasonal spreads, tightening margins for storage operators.
However, the permanent loss of Rough and sharply declining Dutch supply has helped widen seasonal spreads and cross-border differentials, and led Europe to increase its reliance on storage for flexibility. A widening NBP-TTF seasonal basis—and the accompanying cross-border flows—reflect the UK’s need to bid gas away from the continent in the winter to replace Rough flexibility, and offload unwanted supply into NW European storage sites in the summer.
With stocks having begun summer at a record low of 17.6 bcm—and drastic Dutch supply cuts expected to continue—this is a prime opportunity to examine the commercial value of storage capacity, and its effect on summer-winter spreads.
Capacity sold at a flat price can serve as a barometer for where the summer-winter spread is expected to settle for storage to be profitable. For those markets that offer that structure (France, Italy), the price paid for capacity for the 2018 storage year is in the range of 0-2.02 €/MWh.
France, in particular, has enacted comprehensive regulatory changes that include eliminating reserve prices for auctioned capacity, sharply reducing the price of 2018 storage capacity compared to capacity in previous years. Part of that regulatory change included hiking up French transmission tariffs, shifting some of the high cost to shipping.
There is little transparency around storage costs in the German market, but storage capacity holders in the region must grapple with multiple grid fees, which German storage operators argue places German capacity at a disadvantage to other sources of supply flexibility.
Italian storage remains highly regulated, with capacity holders obliged to meet minimum stock-build levels set by Stogit for each month throughout the summer or face financial penalties, limiting the flexibility capacity holders have to optimise injections. That said, new short-term capacity fast-cycle products auctioned this year have been particularly popular, selling at a much higher clearing price than traditional products.
The Netherlands has emerged as one of the most commercially minded regions, with little regulatory burden and a mix of pricing options for its storage facilities.
|Fig 1: NBP front-season spreads, p/therm||Fig 2: European stocks, bcm|
|Source: Reuters, Energy Aspects||Source: GSE, Energy Aspects|