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Changes to Italian natural gas storage rules could lessen auctions' appeal

07 Mar 2013 18:05:04 | esgm

New auctions for Italian natural gas storage capacity will be held on 15 and 22 March, but significant amendments made to recent storage-system reform proposals could undermine the economic incentive to take part.

The capacity being auctioned consists of two products, with 2.5 billion cubic metres (bcm) with flexible withdrawal rates to be auctioned on 15 March and 1.7bcm with fixed withdrawal rates to be sold on 22 March.

An energy ministry decree in February paved the way for the combined 4.2bcm of storage capacity to be auctioned. About the same volume was set aside for the traditional system of pro-rata allocation, for shippers supplying small final consumers. The decree was itself a watering-down of an earlier idea that would have seen all storage capacity opened up to auction to all market participants (see ESGM 19 February).

The energy authority, which has confirmed the March auction dates, said in its decision document announcing the new amendments that some participants had expressed concerns during the decree's consultation process that the tariff applicable to storage assigned pro-rata was unlikely to be competitive with auction prices, given that a reserve price of zero was planned.

That fear appears to have been taken on board by the authority, prompting it to change the rules. The new rules provide that, if the auction price for flexible-withdrawal storage falls below the tariff, it will also be applied to pro-rata storage capacity. If the auction price is greater than the tariff, pro-rata capacity users will pay the lower tariff.

With a high likelihood that the auction and pro-rata prices will be the same but a greater certainty of the fulfilment of requests for pro-rata capacity, shippers are likely to see the latter storage type as a safer bet.

But some Italian market sources said they are unhappy as the new amendments favour larger companies, which they said need to book more storage through the traditional pro-rata system.

A source at one operator said: "It's bad that, so close to the deadline [for requests for pro-rata capacity], they've changed [the rules] under pressure from big groups to level everything upwards. It's easier from a procedural point of view; it's worse from an economic point of view."

According to the decision document, the auctions will be open to all shippers.

The deadline for submitting requests for pro-rata allocated storage, meanwhile, has been pushed back to 8 March from its previous date, 7 March. Emma Slawinski

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