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Highlights

Remaining 19 bundles, 54 mil cu m of space for June 30 auction

Auction takes place amid charging review, modification process

80% discount proposal has "strong industry support": spokesman

London — Gas storage operator Storengy UK will auction remaining capacity and space at its Stublach facility on June 30, the halfway point of the storage year's injection season.

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In an unprecedented move for a storage operation, Storengy UK will try to sell rights that were unsold during previous auctions in November and January, with interest in the latter of those muted "due to the uncertainties in the market around the gas charging review", the operator said following clearance.

The auction will be of 19 bundles of storage rights which consist of space, injection and withdrawal rights, with the total available space within the bundles equating to 54 million cu m.

The UK's gas charging review is set to shake up gas transportation costs in the country, with the implementation of a "postage stamp" methodology meaning the base cost of using grid entry and grid exit points is uniformly applied, although a 50% concession for storage interconnection was awarded by UK energy regulator Ofgem.

A proposed modification to that exception, whereby storage discounts are upgraded to 80% of the flat rate, is still under consideration ahead of the new regime's introduction on Oct. 1.

Charging review

With at least some of the uncertainty surrounding the UK's Gas Charging Review (GCR) now cleared up, the June 30 auction presents an opportunity for shippers to commit to storage use under the new charging regime, while Storengy will be hoping for a higher subscription rate this time around.

"Following our January auctions, many of those who placed bids and others who chose not to place bids expressed concern around the Gas Charging Review," a spokesman for the company said.

"Most of those who placed bids said that they had put in lower bids than previously as a result of the potential GCR impacts, and those who did not bid stated that it was because of the uncertainty primarily created by the GCR."

However, Storengy said the discount granted by Ofgem did not go far enough.

"The 50% discount is the minimum discount that Ofgem could have implemented, with this discount solely in place to avoid the cost of double charging storage facilities as effectively a parking place for gas within the network (i.e. storage pay twice, taking the gas off the network, and then returning to the network at a later date when it is required)," the spokesman said.

"[It] does not take into account the benefits of storage in lowering price volatility and reducing the strain on the network, and does not take into account the extra financial pressure that it places on the storage industry where many operators are already struggling to break even."

"Therefore, we believe that the 50% discount is not enough and could potentially result in further storage facilities being mothballed or closed in the near future, and this is why we raised the further proposals for increasing the storage discount to 80% as soon as the new charges come into effect," the spokesman said.

"We see this as critical to ensure that the UK storage market can continue in operation in the short term, and allow further time to investigate their sustainability for the longer term."

Urgency

Ofgem recently upgraded the consultation into the 80% discount as an 'urgent' issue.

The Storengy spokesman said: "We believe that we have provided... justification in our proposals, and... we are optimistic that these will be accepted by Ofgem. Our proposals also have strong industry support."

Storengy's submission to Ofgem prompted reaction from their fellows at the Joint Office of Gas Transporters lobby group.

Distribution network operator Cadent said: "We are in support of the modification proposal as it encourages the provision and availability of storage to support security of supply, particularly during a cold winter where a diversified supply source can aid meeting high demand, or beach entry is temporarily affected by outages."

Shipper and fellow storage operator SSE said: "If this is not addressed urgently, it would result in a significant commercial impact for storage owners... [and] could ultimately have an adverse impact on security of price and supply for the GB market. This modification proposal will reduce the transportation costs, in particular capacity charges, incurred by the owners of gas storage facilities and/or the users of the facilities."

Likewise, Uniper and Scottish Power also came out in support, as did RWE, who said the status quo was "detrimental", but that the 80% discount would be a marginal improvement.

Norway's Equinor echoed Storengy sentiment regarding "double charging."

Riccardo Rossi of Centrica said: "There is a demonstrated strong, positive correlation between aggregate gas demand and storage withdrawals/injections."

"Currently, storage flows are exempt from the application of TO Commodity Charges which are largely employed to recover revenues not recovered from capacity tariffs. With the shift to a postage stamp methodology, the additional costs imposed on storage users through the application of only the minimum 50% discount would be considerably higher than under the current market rules."

"In addition, this would result in undesirable market impacts, such as increased between day and within day price volatility. These market impacts conflict with this objective by inflating the costs associated with balancing the system."

UK TSO National Grid said the adjustment to 80% "will impose minimal extra costs to non-storage whilst recognizing the role storage can play during times of system stress", while Roddy Monroe of the Gas Storage Operators Group pointed out that some continental storage discounts offered discounts of up to 100%, which would place the UK at a competitive disadvantage.

Not every gas transporter supported the modification.

Henk Kreuze of Vermillion said it supported "the storage discount of 50% for transmission services capacity at the minimum level in the EU Tariff Code as this more closely reflects the principle of 'the same service for the same tariff'."

Pavanjit Dhsei of Interconnector UK said: "An 80% capacity storage discount for storage users would have a negative impact on competition between users of other flexibility assets like bi-directional interconnectors. It distorts competition in favor of storage user/facilities."

"Granting extra discounts to reflect the security of supply, system and wholesale price benefits that storage assets provide to GB is only appropriate if discounts are equally considered and applied to other assets providing the same benefits. This is necessary to avoid discrimination. A number of other assets including interconnectors provide wider benefits to GB also."

IUK said it was affected by the wider consequences of the charging review, and that additional discounts would "aggravate the situation".

Will Webster of offshore trade body Oil and Gas UK said: "Discounts made available to National Gird customers on a selective basis have to be paid for by other users of the system. This has a knock-on effect on their investment and operational decisions so such decision should never be looked at in isolation."

"In this case, however, evidence has been provided on cost reflectivity and the impact on the remaining market participants is relatively small."