Germany's Gas Market Manager Explores Storage Subsidy to Mitigate Supply Concerns
Germany's Trading Hub Europe (THE), responsible for the efficient operation of the country's gas market, has initiated discussions with authorities regarding potential subsidies to replenish gas storage sites amid escalating supply challenges in Europe.
In January, THE introduced considerations for a possible subsidy program for suppliers, sparking significant trader interest. However, the organization has remained discreet regarding the specific details of the plan to mitigate sharp price fluctuations stemming from market speculation.
"No definitive decision has been made yet," stated Torsten Frank, Managing Director of THE, in an interview. "We are currently engaging with the ministry and the regulator. Once the product is finalized, we can delve deeper into discussions about its launch date."
The proposed tool aims to assist Germany in accumulating sufficient fuel reserves ahead of next winter, countering the current market conditions that discourage storage investments.
Traditionally, traders build up gas reserves during warmer months when demand and prices are lower. However, the recent surge in fuel prices for summer delivery compared to contracts for the following winter has made stockpiling financially unfeasible.
This trend stems from market expectations of a tight supply situation in the coming months, with robust demand in Europe and uncertain supply prospects. Maintaining substantial fuel inventories has become paramount for Europe's energy security, particularly since the significant reduction in Russian pipeline flows in 2022, providing a buffer against demand spikes during the heating season.
To incentivize storage replenishments and meet legally defined targets, THE is considering granting subsidies to suppliers during periods of unfavorable seasonal spreads. The announcement of these discussions in January further widened the spread, suggesting that summer gas would be purchased despite higher costs.
"The spread is influenced by various factors, not just the THE announcement," explained Frank. "Its development predates that." He also acknowledged the possibility that the product may not be launched.
At an industry event in Essen this week, THE responded to numerous queries from traders, addressing concerns about the ongoing deliberations creating further market volatility and seeking clarity on the potential product's specifications.
Markus Sammut, Head of Regulatory Affairs, Security of Supply and Data Analysis at THE, revealed that any subsidy would ultimately be borne by end consumers through Germany's storage levy. The product's conception stemmed from discussions with the ministry, and tenders would only occur upon government request, Sammut clarified.
THE organized the event to solicit questions and collect feedback to inform the finalization of the product. If the new product remains untendered, THE may resort to filling storages independently or the ministry may lower target levels.
Participants entering the tender need not possess storage facilities but can submit offers based on the expectation of securing storage, albeit at their own risk. Successful bidders must demonstrate to THE that they hold the requisite amount in storage by November 1.
"The instrument will ultimately provide financial support to entities involved in the storage process," Frank stated in the interview. "The primary objective is to ensure that gas is available in storage by November 1. Failure to meet storage requirements is not an option."