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European natural gas storage facilities face closure on weak economics: industry

Vienna — A number of European gas storage facilities could face closure in the coming years given the weak economics for operating sites across the continent, industry leaders said late Wednesday.

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At the European Gas Conference in Vienna, officials from storage operators in Germany and Austria said the summer-winter spread -- historically wide to incentivize injections in the summer and withdrawals in the winter -- has narrowed considerably in recent years.

"I'm surprised we haven't seen more closures," managing director of gas storage at Austria's OMV, Erich Holzer, said.

"There will be more closures in the future -- summer-winter margins are too low to keep these storage facilities [operational]," Holzer said.

Head of energy storage Austria at Germany's Uniper Michael Schmoltzer echoed his view.

"The economics say that you have to close your storage sites that do not cover their costs," Schmoltzer said.

"The summer-winter spread is putting us under pressure," he said.

The current spread between TTF day-ahead prices and summer 2017 is just over Eur3/MWh, according to Platts assessed prices on Wednesday, but has been as low as Eur1/MWh in recent months.

The bleak outlook has been somewhat tempered by a strong use of storage across Europe so far this winter.

Commercial Managing Director of Innogy Gas Storage Michael Kohl said Europe was on track for its gas storage levels to drop to record lows by the end of the winter having started the season at record highs.

"Very low prices in summer 2016 drove the filling," he said, adding that levels were now around 50%.

Asked whether there was a risk of European gas storage levels running dangerously low in the event of a continued cold winter, Kohl said it remained to be seen.

"It is too early to say if there will be an issue, and depends on the type of storage," he said, pointing to a more reliable withdrawal performance for salt-cavern storage facilities.

But OMV's Holzer said storages could go to their lowest ever by the end of the winter of under 11% full.


Holzer said that in the past few weeks there had been extremely high withdrawals to counter the prolonged cold snap across much of Eastern and Southern Europe.

The spread between the Austrian and Italian hubs has blown out in recent weeks making the withdrawal of gas in Austrian storages to supply Italy more lucrative.

"Customers of our storage are looking to make money now," Holzer said.

Uniper's Schmoltzer said some 100 Bcm of gas was stored in Europe ahead of the winter, an all-time high.

Competition between storage operators in Europe is also high, adding to the economic threat to individual companies.

Closures would, of course, benefit those left behind.

Some 3 Bcm of gas storage capacity in Europe has been closed over the past five years, but some 12 Bcm has been added, meaning a net 9 Bcm gain, Kohl said.

He added that increased pipeline capacity from Russia and Norway, as well as LNG supplies, were also a threat to gas storage economics in Europe.

However, he said, gas storage facilities were still better placed to respond to an immediate supply shortage as withdrawals could take place quickly.

LNG, on the other hand, would always be slower to respond as the vessels would have to be diverted to Europe, which takes time.

--Stuart Elliott,
--Edited by Jonathan Dart,