Germany is considering expanding a key market incentive to encourage traders to raise gas storage levels ahead of the winter, a government source told Reuters on Wednesday as German gas sites are barely half full at present.
Europe’s biggest economy has the world’s fourth-largest natural gas storage capacity, but this capacity has been only 56% full as of the middle of September, according to data by Gas Infrastructure Europe.
That’s a historically low level, the lowest in at least a decade and a half, as soaring natural gas prices amid the Middle East crisis have deepened the backwardation structure and discouraged holding supply for later deliveries. Backwardation is the market structure in which prompt contracts trade higher than those further out in time, signaling concerns about immediate supply.
As a result of the low storage levels, Germany is risking gas shortages this winter if it turns out to be colder than previous years, the country’s gas storage association, INES, warned last week.
Therefore, the German government is looking to use the existing market tool, the autumn tender for Long Term Options, or LTOs, on a larger scale.
The tender is set to be increased by a yet-to-be-determined volume of gas, according to Reuters’ source.
Germany would rather avoid direct state purchases of gas as it did in 2022, but has agreed with state-held energy firms Uniper and SEFE they would inject more gas into their storage facilities.
Last week, industry association INES warned that refilling has “fallen significantly short of the required pace so far this year” and that “the window for sufficient refill is closing.”
“While it is still technically possible to reach a storage level of around 77%, simply having storage capacities booked is not enough,” INES Managing Director Sebastian Heinermann said.
“Filling storage facilities must be economically viable if market participants are to actually carry it out.”
By Tsvetana Paraskova for Oilprice.com
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