New annual gas capacity auction date to boost other products

New rules which mean annual capacity will be auctioned on Monday, could push Italian shippers to buy more monthly and quarterly capacity instead, a trend that could be repeated in other EU gas markets too.

New annual bundled natural gas transmission capacity products in Italy, Belgium, France, the Netherlands and Germany will be auctioned via PRISMA on 2 March, the pan-European electronic platform said on Tuesday.

Shippers in Italy think the auction is too soon for them to take a position, given the gas will be delivered in the new gas year beginning in October 2015. Similar issues could emerge in other markets.

The auctions are to comply with the EU’s capacity allocation mechanism (CAM). EU gas grid operators will have to sell annual pipeline capacity up to 15 years ahead as bundled products in auctions held on the first Monday of March each year and quarterly capacity for the gas year ahead on the first Monday of June, because of the new rules.

Italian interest

The uncertainty caused by geopolitical tension between Ukraine and Russia, the declining oil price and the effects of production cap at the Dutch Groningen gas field, are factors making some shippers active in Italy unwilling to take a position by buying annual capacity now.

“Market variables make the risk/profit profile unfavourable,” one trader said.

However, rules for storage allocation for the upcoming year have now been published (see ESGM 16 February 2015) as well as a new reform on fees at entry points (see ESGM 20 February 2015).

Traders said that the most interesting products at Italian entry points were on Tarvisio and Passo Gries points, because competition to import gas at these points is greater than the points bringing gas from north Africa.

According to a source, the reform of fees at entry points will help positioning for the annual auctions. The Italian energy regulator AEEGSI said on Friday it will move three fees currently applied at Italian entry points, to the country’s exit points from October 2015. The three fees to change are called CVbl, CVos and CVi. Two existing CV and CVfg fees will continue to be applied at entry points.

“On the PRISMA [annual] auctions, perhaps now that they have moved [some] fees [to exit points, it] could be a bit better, but the CVfg [fee], which has to cover OLT [LNG terminal’s] revenue, could triple from April compared with Q1, is still applied at entry points,” one source from a utility said.

Balancing change

A separate source from a large shipper stressed how the new balancing system makes it difficult to calculate how much capacity to buy at annual auctions. A number of details of the balancing code’s implementation in Italy need to be clarified, including how gas transmission system operator Snam will take part and how it will price offers of balancing gas.

Moreover, this is the first time that capacity is assigned in March – normally it would be assigned around August – when the commercial campaign has almost been completed.

The commercial campaign is when household and industrial consumers negotiate gas supply contracts. It normally takes place between March and September, with most contracts signed by July.

The source from the utility added that with the transport capacity auctions taking place for the first time after storage auctions, more uncertainty is created towards the annual auctions. “It is true that there are also quarterly auctions taking place in June, but always some annual capacity remains unsold,” the source said, pointing to other ways to buy transport capacity later in the year. Matilde Mereghetti