Dutch gas super store banks on better times ahead

Thu Nov 8, 2012 8:00am EST

* Big players look to Dutch storage auctions from 2014

* Britain to draw on gas, storage space on continent

* Germany oversupplied on storage but seeks to ride out crisis

By Ivana Sekularac and Vera Eckert

AMSTERDAM/FRANKFURT, Nov 8 (Reuters) - A giant new Dutch gas storage facility will collide with a weak European gas market, hit by low demand as the continent battles its economic ills.

But it will enhance the market's flexibility and efficiency beyond the gas market's short term horizon of up to 2015, traders and analysts said.

By injecting gas into storage when supply is plentiful and withdrawing it when it is scarce, gas storage sites are key to ensuring there is enough fuel to meet demand during winter peak demand.

Like the Dutch Gate liquefied natural gas (LNG) terminal at Rotterdam, the site may initially be underused during the downturn, but will inject more life into the traded gas market in the longer run.

Abu Dhabi's National Energy Company (TAQA), Taqa has announced that its 4.1 billion cubic metres (bcm) - around 7.5 percent of Dutch annual gas demand - unit at Bergermeer will start auctioning the bulk of its capacity auctions annually from 2014.

"Bergermeer is going to put a huge part of its capacity to auction and that's good news for the free market," said Jeroen de Joode, researcher at the Energy Research Centre of the Netherlands (ECN).

Gazprom has agreed to provide gas to TAQA in return for space in Bergermeer, and other parties leasing more than 90 percent of Bergermeer's initial 1.0 bcm for between 4 and 10 years are familiar names - Norway's Statoil, Sweden's Vattenfall and France's EDF.

"Storage is one of the things you need to take a long-term view on," a gas storage analyst in Britain said. "Britain didn't used to need gas storage when it had its own big reserves, but now we need new storage at the same speed as domestic reserves a falling at around 5 percent a year in order to provide more flexibility with less supplies."

Costing 800 million euros ($1.02 billion), Bergermeer will nearly double Dutch storage capabilities to 9 bcm and together with the LNG terminal Gate will serve the ambition of the Netherlands to become the central European gas hub.

"For a long time, storage capacity has been neglected but in the last couple of years investments were made and there is a significant increase," de Joode added.

The massive rise in storage capacity will likely coincide with more liquefied natural gas (LNG) tanker imports into the region, whose own natural gas resources are dwindling.

Bergermeer is only 20 km from the BBL gas pipeline between the Netherlands and Britain, Europe's two leading gas markets, and on the route that future Siberian pipeline gas will take to reach France, the Benelux and Britain.

"The market is waking up to the hedging possibilities that Bergermeer offers, even if the gas storage business is not exactly a cash cow at the moment," said a UK-based trader.

Abu Dhabi's Taqa holds 60 percent of the project while Dutch state-owned gas firm EBN owns the remaining 40 percent.

SLOW DEMAND, SMALL SPREADS

The storage business has been unattractive in mainland Europe's sluggish market, where storage usage is falling.

This is borne out by small summer-winter spreads in benchmark European gas prices quoted on the Dutch Title Transfer Facility (TTF) and on Germany's energy bourse EEX.

TTF winter 2013 gas has a 9 percent premium over summer 2013 at 28.9 euros a megawatt hour.

In Germany's huge but relatively illiquid gas market, which has built up the ability to store 20.4 bcm, equivalent to between a quarter and a fifth of annual needs, the winter-summer difference is just 4 percent.

This means that the return of investment for continental European gas storage sites is low.

"There is no incentive for real marketing to take place to create competition in storage," said Marcus Stronzik of the WIK Infrastructure Research Institute in Bad Honnef near Bonn, referring to Germany.

"That is a shame because in theory, customers need flexibility for their planning, traders would like to offer more services, and investors are still interested in storage."

Experts on the German market say its local gas storage is overdeveloped. It was devised in the middle of last decade when Russian gas prices were firming and sector reforms led to a boom in trading. There is even a backlog of new capacity coming up.

Additionally, sources say that a large proportion of Germany's gas storage is not meant to be traded freely but instead is seen as a national safety asset for times of high demand and low supplies.

German utility E.ON's storage unit has just completed injections at its new site at Etzel, which it operates jointly with Austrian energy sector peer OMV, eastern German VNG and Frankfurt trader Gas-Union.

Wintershall and Gazprom's joint firm Astora operates huge units totalling 6 bcm in northern Germany and Austria and is set to open a new unit at Jemgum in 2013, where E.ON and local utility EWE also have separate projects.

Germany's gas market has lost two percent of demand this year and 13 percent last year, as it rewards renewable energies and enforces energy savings.

But Germany's gas gloom could be localised and transient.

International Energy Agency (IEA) data still peg EU import needs in 2030 at 523 bcm by 2030 compared with 312 bcm in 2009, based on the fall in domestic output.

Britain's market, totalling 100 bcm, with fast dwindling domestic supplies and comparably sparse storage capacity of 4.5 bcm, already uses LNG brought in from overseas, and is expected to be turning to Europe for more pipeline gas in future.

($1 = 0.7840 euros) (Editing by Henning Gloystein and William Hardy)

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