Gas storage: markets and projects

Last month we looked at the basic methods of storing natural gas, and the relative advantages of each type of facility. This month we look the gas storage market and various gas storage projects across Europe. 

Making storage markets 

Access to flexibility, and therefore gas storage is crucial to companies wishing to compete in gas supply markets where demand is variable, and there are balancing penalties. However, the first EU gas directive, agreed in 1998 and meant to be implemented by national governments by 2000, fudged the issue of gas storage, leaving sufficient uncertainty as to whether storage or what percentage of storage facilities should be considered part of the open access system. In practice this enabled incumbent players, who also controlled storage in most EU countries, to prevent new entrants from using storage facilities. The European Commission then tried to define what storage should be provided, but it was always difficult to argue following the initial lack of clarity in the directive text. The Second Energy Directive, agreed in 2003 for implementation in 2004, went much further, explicitly obliging member states to ensure third party access to storage, although giving states permit negotiated or regulated access to storage infrastructure (as contrasted to mandatory regulated access to transmission system). Further work through the Madrid Forum (a meeting of EU gas industry players and regulators) has brought into being a set of voluntary Guidelines for Good Practice for Storage System Operators (GGPSSO), which storage operators have agreed to implement. Practical implementation, however, is still very limited. For example, a recent report found that out of 43 European storage operators questioned, only one (Centrica Storage Ltd, operator of the Rough field in the UK) had fully implemented the transparency guidelines of the GGPSSO. 

The current situation therefore is that most storage operators in the EU do offer third party access to their facilities. However, in many cases, practical access can be very difficult, with existing capacity tied up in long-term contracts, or limited by challenging contract terms. Some companies have tried to side-step the regulations, for example, the Dutch gas producer NAM, offers a limited amount of gas storage capacity to parties other than its long-term customer, GasTerra (formerly Gasunie), at its Grijpskerk field, while maintaining that the facility is actually a production facility rather than a storage facility, and therefore it is under no legal obligation to offer any storage services to the market.  

In addition the Second Energy Directive allowed exemptions from third party access to new strategic infrastructure (LNG import terminals, interconnectors or storage facilities) subject to certain criteria such as improving security of supply and competition. Therefore most new storage projects proposed or under construction at the moment make use of these exemptions. This allows a storage facility developer to reserve a facility for its own use or sell capacity long-term, without being subject to heavy-handed open access regulation.  

The UK gas storage market 

The UK gas storage market can be split into two sections: those facilities that were formerly part of the British Gas portfolio, the owners of which are required to offer third party access, and new facilities, built since about 1999, which generally have exemptions from third party access. The UK has comparatively little storage, approximately 4.5 bcm of storage capacity, due to its historic reliance on swing production, particularly in the Southern North Sea and Morecambe Bay. As the UK swing production has declined rapidly in recent years, and imports (which tend to be more baseload) have increased, a growing need for UK gas storage capacity has emerged, and a number of companies have tried to enter the market. However, planning permission remains a huge issue, with a large number of projects held up by local opposition. Currently third party access can be purchased and traded at the Rough facility, Hornsea (now owned by Scottish and Southern Energy), and the NationalGrid LNG peak-shaving facilities. Other existing storage facilities include Hatfield Moor, a small, onshore depleted field developed by Scottish Power to meet its own swing gas requirements; Hole House Farm, a small, highly flexible salt cavity storage facility built by Aquila Energy and sold on to EDF Trading; and Humbly Grove, a medium-sized onshore depleted field, developed by Star Energy, having sold its capacity long-term to Vitol. In addition salt cavities are currently under construction at Aldbrough (being developed by SSE and Statoil) and at Holford (EON). 

In the medium term, UK gas storage capacity is forecast to more than double as a huge number of new projects have been proposed, as show in Figure 2, which shows NationalGrid’s estimates of potential storage capacity with various projects. However, many have currently fallen foul of planning regulations, as illustrated by Figure 3, which show the current planning status of these projects, with almost all either refused planning permission at the first stage, or not yet applied for it. Appeal against local authority refusals is possible, with the DTI and the Office of Deputy Prime Minister having pushed through a couple of projects in the national interest, such as Holford. However, the DTI is currently seeking a change to the planning laws, to allow storage facilities to bypass the local planning authority stage and so, hopefully, to speed up the approval process.

Figure 1: Gas storage in the UK

Figure 2: Capacity at existing and proposed gas storage facilities in the UK

Source: National Grid plc, Ten Year Statement 2006

Figure 3: Planning status of storage capacity in the UK. Source: National Grid plc, Ten Year Statement 2006 

The German gas storage market 

In contrast to the UK, Germany has a huge amount of gas storage capacity, almost 20 bcm of capacity, in a mixture of depleted fields, salt cavities, and a handful of aquifers. However, the storage market is fragmented with a large number of players owning storage facilities. Storage access is possible, with terms offered by players such as BEB, EON Ruhrgas Transport (ERT) and RWE. However, utilising storage commercially is difficult for many players, due to difficulty either gaining access to storage services, or transportation services to take between supply sources, storage facilities and market centres. The growth of gas trading, both on the BEB Virtual Point and ERT’s system, is likely to boost the use of storage as a trading tool. There is also significant new build of storage underway, mostly in the salt layer close to the Dutch border at Epe. This is mostly existing large players building storage for their use, in some cases designed to serve the Dutch market, rather than the German markets. 

Figure 4: Gas storage in Germany

Gas storage in the Netherlands 

The gas storage market in the Netherlands is at an interesting cross-roads. Traditionally swing requirements for the Dutch and export market were met by the huge, high swing, Groningen field, whilst the small fields policy was designed to allow the other Dutch onshore and offshore fields flow at a high load factor throughout the year. However, during the 1990s three depleted field gas storage facilities were developed in order to prolong the life of the Groningen field, Grijpskerk and Norg (also called Langelo) operated by NAM, and Alkmaar PGI, operated by the Bergen Concessionaires. There was also an LNG peak-shaving facility operated by the transporter at Maasvlakte. All capacity in the depleted field storage facilities was sold long-term to Gasunie (now GasTerra), and the facilities were operated in conjunction with the Groningen field. Following market liberalisation around 2000, the storage operators reluctantly released a small proportion of storage capacity to the market at Alkmaar and Grijpskerk, although the size of the storage bundles released have actually made it difficult for new entrants to utilise this capacity. At the same time the developing dynamics of the Dutch gas market have encouraged new players to build their own, typically fast response, gas storage facilities, with salt cavities developed by Essent, Nuon and D-gas (part of EON) in Germany directly connected to the Dutch transmission network. These investments reflect both the increasing value of flexibility in the Dutch market, the desire of the main distributors to reduce their dependence on the flexibility sold by GasTerra, and their desire to boost physical assets in the supply side of the business before a potential unbundling of transportation and supply that the Dutch Government is proposing. Further developments are currently proposed such as the Waalwijk and Bergermeer depleted fields, or the Zuidwending salt cavity project.  

As these snapshots of three key markets illustrate, gas storage markets across Europe are developing slowly in terms of market opening, however, significant numbers of new gas storage facilities are proposed or under development as players seek to acquire access to flexibility for supply or trading purposes. 

Figure 5: Gas storage in the Netherlands

Written by Nick F White. MJMEnergy Ltd

Nick is a lecturer on our Gas Storage course, to be held on the 4^th July in London. For more details click here.