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New natural gas storage trends at NAFTA a.s.

Liberalization and development of gas spot markets has enhanced the traditional role of underground natural gas storage as an instrument that can boost trading in natural gas.

Liberalization and development of gas spot markets has enhanced the traditional role of underground natural gas storage as an instrument that can boost trading in natural gas.

Fundamental presumption for gas market liberalization

Several years ago, the European Union defined a goal for the gas industry: to establish a single gas market and promote the development of competition in this industry. The basic step was a legislative framework created in the form of so-called energy packages passed by the European Parliament.
The common denominator for these legislative steps in the field of natural gas storage was provision of transparent and non-discriminatory third-party access to the gas infrastructure and – as far as NAFTA is concerned – to storage capacity. In Slovakia, such rules were primarily reflected in the Act on Energy and Regulation, as well as in other related secondary legislation.
Under the above laws, NAFTA developed general terms and conditions applicable to the provision of storage services, the so-called Rules of Operation, which are approved by the Regulatory Office for Network Industries. In accordance with the above terms and conditions, NAFTA offers its services in public tenders – an approach that provides equal access to storage capacity for all gas market players. In the last five years, NAFTA provided the gas market with storage capacity of approximately 2.5 billion m3, which resulted in a significant increase in the number of clients from 2 (five years ago) to the current 11.

The new role of underground gas storage

In the gas chain, the traditional role of underground gas storage is to level off seasonal gas consumption differences (summer / winter differences). Underground gas storage also has a crucial role in the security of gas supplies, which became apparent during the gas crisis. As a result of gas market liberalization and the development of trading hubs, new requirements arose with respect to gas storage services.
The products offered by NAFTA to its clients became more flexible and more short-term. Development of new storage products is NAFTA’s response to the current market requirements, raised either by the suppliers who are present in the central European gas market, or by the activities of traders in these markets.

Free storage capacity – new products

Currently, for the upcoming storage seasons, NAFTA has available free storage capacity of 225 million m³, which is being offered to the market via public invitations to tender. Last year in a public tender NAFTA acquired 4 new clients, mainly foreign traders operating in the spot markets for gas.
New products are developed bearing in mind the needs of the gas markets. For these products, an important parameter is the storage contract term. Therefore, the NAFTA portfolio comprises long-term, medium-term, as well as short-term products. Currently, NAFTA prepares its offer of services on both a daily and monthly basis, particularly with respect to individual injection and withdrawal rates. NAFTA has also started developing services on an interruptible basis; these are a convenient supplement to the firm commitments. Gas storage-related services offered by NAFTA comprise gas injection, gas storage and subsequent gas withdrawal. NAFTA constantly enhances the safety and reliability of such services, mainly by investing in the quality of the technologies used.

Tender for sale of storage capacity

When trading in storage capacity, the first step is technical: geological calculations are needed to determine the available storage capacity, including relevant performance parameters (particularly the availability of injection and withdrawal rates) for a defined period. The next step is defining the product to be offered in the public invitation to tender. For price regulation purposes, upon determining the key product parameters a European market price benchmark is developed, which represents the basis for price quotations for storage services. The procedure for determining the price benchmark and the price quotation are continuously monitored by the Regulatory Office for Network Industries.
The prepared price quotation is submitted for approval by the General Assembly and subsequently submitted to the Regulatory Office for Network Industries; the latter decides on the price by issuing a decision. Such a price decision specifies the maximum price applicable to the products being sold. The public tender process may then be started. Tender documentation is published on www.nafta.sk.
Until the deadline for presentation of tenders, NAFTA actively communicates with the interested parties through a so-called “Bidder’s Conference” where the interested parties may obtain any and all information pertaining to the public tender. The result of the process is communicated to all participants, and storage contracts are subsequently signed with successful bidders.

Gajary-Báden project

NAFTA has a storage capacity of 2.2 billion m³. In 2008, NAFTA started extending its storage capacity by putting into operation Stage 1 of the Gajary-Báden underground gas storage facility, which will increase storage capacity by approximately 500 million m³ to a total of 2.5 billion m³ within several years. In comparison with the current capacity this is an increase of approximately 14 percent. Stage 2 of the Gajary-Báden project is currently due to be commissioned in 2011. The expected construction costs amount to EUR 166 million. This investment is being financed by NAFTA, from a combination of company funds and loans. Upon completion of the investment, Slovakia will have one of the highest ratios between existing storage capacity and actual natural gas consumption.

Gas market development

Gas market liberalization and spot market development result in the need for new products. In the gas storage industry this means mainly short-term storage contracts and more flexible products. NAFTA is constantly adjusting its products to meet market requirements as well as the needs of its clients. This should also be supported by appropriate regulatory mechanisms. The currently effective regulation does not meet these requirements, because a number of administrative obstacles have been introduced that prevent storage operators from responding to market requirements in a prompt and flexible manner.
Consequently, as a result of price regulation, the overall process of offering storage services is prolonged by three months. The establishment of a flexible and market-based regulatory framework and access to storage using transparent and non-discriminatory principles would be beneficial to all parties, in particular to our clients.

Topic: Industry

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