French gas market divided on new storage rules

06 July 2017 15:54 Source:ICIS

• Law change to clarify suppliers’ storage obligations

• New legislation a “threat” to security of supply - operator

• Market participants slam government’s lack of transparency

French natural gas suppliers have broadly welcomed a proposed change to France’s storage legislation, which will allow them greater flexibility in meeting their storage obligations. But storage operators have slammed the change, arguing it is a threat to France’s security of supply.

The point of debate is a draft ministerial order – known as an arrete – prepared by the French energy ministry and which has been sent to public advisory body Conseil Superieur de l’Energie (CSE) for examination on 6 July.

The order aims to cement the rules that govern suppliers’ storage obligations, which shippers consider to be woolly and open to interpretation.

The proposed clarifications will allow suppliers to use gas held in storage sites in other EU countries, as well as in French and EU LNG terminals, to fulfil up to 50% of their obligations.

The French government imposes strict obligations on suppliers as a means to ensure security of supply and cover peak winter gas demand. Companies are required to hold a certain amount of gas in store at particular times depending on the make-up of their end-user portfolio.

Positive step

Gas industry association AFIEG, which counts key suppliers Alpiq, Gazprom Energy and Uniper among its members, has welcomed the changes. It said the measure removes the uncertainty surrounding the current legal framework, which has been in place for nearly four years, around the definition of “instruments of supply modulation”, i.e. which methods suppliers can use to meet their obligations.

“This order constitutes a major clarification in terms of an approach to security of supply, by confirming the essential role of French storage, while recognising that other ‘subsidiary’ instruments are able to provide the necessary flexibility for the gas system in times of peak winter demand,” the association added.

A regulatory expert at a French supplier agreed that the draft order is a positive step. But he said that certain suppliers are opposed to the draft measure in its current form because it is difficult to understand and the conditions of relying on foreign storage sites and LNG stored in terminals are very stringent. For instance, suppliers would require certificates from relevant regulators and authorities, which may be difficult to obtain.

Security or supply ‘threat’

Storage operators have slammed the order, arguing that reducing the obligation to hold gas in French storage sites poses a threat to France’s security of supply in the event of an average winter, let alone a particularly cold one.

“LNG enables the diversification of supply, but does not provide any guarantees in the event of a cold snap. Emissions from LNG terminals effectively depend on the proximity and availability of LNG tankers at the required moment in time, [which cannot be guaranteed],” a spokesperson for France’s largest storage operator Storengy said.

She added that using storage facilities in other EU countries to meet French demand is also risky. This is because if a cold snap occurs in France and causes a spike in consumption, the high demand situation is likely to be replicated in other countries, meaning these sites abroad cannot be relied on to meet French demand.

The spokeswoman pointed to the particularly cold winter of 2012 as an example of the importance of national storage. That winter, soaring demand meant French storage sites were needed to provide around 60% of France’s daily consumption needs.

No consultation

Although operators and suppliers differ on the merits of the order, they both slammed the French government for its lack of transparency and communication when preparing the legal text, which – if implemented – could have far-reaching consequences for gas industry participants, particularly storage operators.

The government did not hold a public consultation on the subject. Neither did the Inspectorate General of Finances, an auditing and supervisory body, publish a much-anticipated report on the French storage sector – a study which was expected by March 2017.

If approved by the CSE, the order should be passed into law within one or two weeks.

It remains to be seen whether the changes will be enforced during the current storage cycle or for the season starting in April 2018.

“It is not fair to change the rules in the middle of the game. This arrete should have been published in January or should be applied only for winter 2018-19,” said another regulatory expert at a supplier.

By Alex Thackrah