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European gas storage: investment is politically sensitive

Gas storage capacity in the UK and Belgium is well below the European and North American average.

Fuel storage capacity, by its very nature, is strategic infrastructure. Indeed, the Belgian regulator’s recent decision to reject Gazprom’s application to build a new gas storage facility in the region highlights the tension between the need for new storage investment and the political sensitivity surrounding who owns these strategic assets.

Content Gas storage is valuable precisely because it holds gas that is surplus to market requirements, but while gas storage clearly plays a role in system balancing, the great bulk of it is only intended for either sudden, extreme peaks in demand, or sudden, disastrous declines in supply. The average European country has storage capacity sufficient to meet 19 days of peak demand. Among the world’s large economies, the UK is unique in the paucity of its storage capacity, with only 10 days’ worth of supply. Indeed, Germany has 34 days’ worth, France 48 days, Poland 34 days, the US 67 days and Japan 50 days. Within Europe, only Switzerland, Belgium and Greece have a lower level of storage capacity than the UK.

Part of the explanation for the UK situation is that it has been, until relatively recently, a net exporter of gas. In the UK’s market-driven system, it is not surprising that storage is not an investment priority. Utilities have an incentive to moderate spot prices by building a certain amount of storage, but building strategic storage on the order of 30 days, or planning for a UK gas deficit in five to 10 years’ time, may not be a market priority. Belgium is in a similar position, with only 8.5 days of storage capacity to meet peak demand. Although one might expect the country to jump at offers to build new storage capacity, the Belgian regulator, the CREG, recently rejected an offer by Gazprom to finance the construction of a new storage facility near Zeebrugge. One of the CREG’s main reasons was that it refused to allow an exemption to third-party access rules.

Exemption is normally given to builders of gas storage, but the difference in this case is Gazprom’s upstream dominance, and the fact that it is controlled by a foreign government. In Europe’s liberalizing energy market this is not supposed to matter, but gas storage, as a uniquely strategic energy asset, will probably always be treated with special sensitivity by national governments and their energy regulators, even in the face of insufficient domestic investment. (energy-business-review.com)