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German TSO OGE warns of new winter natural gas supply issues

06 Dec 2012 16:42:36 | esgm

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Germany's largest natural gas transmission system operator (TSO) Open Grid Europe (OGE) on Thursday warned of new supply shortfalls this winter because of bottlenecks within the German gas network.

According to OGE managing director Stephan Kamphues, the German gas market could experience a similar situation at some point in the coming months, as seen last season.

In early February this year, prices at several European traded hubs hit the highest levels ever recorded by ICIS, as demand surged on the back of freezing temperatures (see ESGM 3 February 2012). Traders reported contract nominations at record highs as Day-ahead spot contracts surpassed ICIS long-term contract price assessments.

Germany's NCG Day-ahead contract closed at €38.25/MWh on 7 February 2012 the highest level ever recorded by ICIS. The seasonal high for NCG Day-ahead this winter currently stands at €28.50/MWh, recorded on 5 December. But traders expect the contract to gain further, as weather forecasts predict temperatures significantly below the norm in the coming days and weeks.

The spike seen in February was mainly caused by Russia's Gazprom not being able to meet rising incumbent nominations which rallied as temperatures plunged rather than existing flow levels actually decreasing. But in Germany, the tightness was additionally enhanced by grid issues. According to the German regulator Federal Network Agency (BNetzA), the combination of reduced supply and high demand has shown that there is a north-south bottleneck within the German gas grid, which has to be tackled in the next grid development plan in 2013 (see ESGM 28 June 2012).

In this context, Kamphues called on the regulator to create a reasonable and reliable investment environment for TSOs beyond 2017 in order to incentivise grid investments. "We want to invest, and we will invest [in the grid], but we need room to breath," he said.

Last year, BNetzA decided to lower the allowed return on new investment rate by 0.24 percentage points from 9.29% to 9.05% before tax and from 7.56% to 7.14% before tax for existing installations from 1 January 2013 (see ESGM 27 October 2012). The new rates will be valid for one regulatory period until 2017. However, most grid investment projects are planned over a significantly longer period.

Despite the exceptional spike in February, 68% of participants consider security of supply at the German hubs "good", while 29% even judge it "very good", according to an ongoing ICIS study among German gas buyers. Just 3% find security of supply at NCG and GASPOOL to stand at a "satisfactory" level. So far, the study contains data from interviews with 34 industrial buyers and municipal utilities. JR

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