Bergermeer natural gas storage auction attracts huge demand

LONDON (ICIS)–A storage capacity auction at the Dutch Bergermeer site attracted massive interest as market participants sought flexibility amid a bearish price environment, while the widening TTF Summer ‘20-Winter ‘20 spread also supported higher capacity prices.

The Bergermeer storage facility, operated by TAQA, held an auction on 18 February for storage year 2020, during which all the offered 3TWh of capacity was sold, for a weighted average price of €6.06/MWh, the highest in the last six capacity auctions.

PRICE EXCEEDS SUMMER-WINTER SPREAD

TAQA said that overall demand for storage capacity was 31TWh, more than 10 times of the offered volume.

The average weighted price of €6.06/MWh is €1.322/MWh above the TTF Winter ‘20 premium to the Summer ‘20.

This is likely to discourage shippers from hedging on the summer-winter spread as this would not cover the capacity costs.

The fact that market players paid a considerable premium on top of the current summer-winter spread could indicate that they expect the spread to further widen in the coming weeks.

Alternatively, they could wait until the summer delivery period starts in April and hedge their storage position on a potentially higher spread between shorter-term contracts and the Winter ‘20 product.

Strong market interest was also driven by expectations of continued bearishness for the remainder of 2020.

In a low price environment, the flexibility that storage capacity gives to shippers makes it more sought-after and valuable.

“A lot of the value is in the flexibility it can give you. Expectations of really low Day-ahead prices could make storage more valuable,” a trader told ICIS earlier this month.

When the Day-ahead price is below the front month during winter, capacity holders have the optionality to keep gas in storage tanks and wait for higher prices next month.

“And having that optionality has value,” the trader added.

GASTERRA AUCTION

High demand and increased value for storage capacity in the Netherlands was already apparent in the most recent auction of GasTerra storage capacity on 29 January.

During that auction all standard bundled units (SBUs) were sold for an average weighted price of €7.22/SBU or €5.014/MWh.

On the same day the TTF Winter ‘20 premium to the Summer ‘20 was €4.025/MWh, which means that market participants paid around €1.00/MWh above the time spread on the day.

Since then, the Winter ‘20 contract increased its premium to €4.738/MWh on 17 February.