European natural gas storage auction prices for 2025 capacity point to potential supply risks over coming months that continue to provide support to season-ahead contract prices, tightening the next summer-winter spread significantly.
France's Storengy, the country's largest storage operator with a technical capacity of 95.4 TWh, saw a clearing price in its Oct. 2 auction of 32 euro cent/MWh for 1 TWh capacity at the Serene Atlantique facility over the 2025-2026 storage year period.
Comparatively a year earlier on Oct. 3, 899 GWh at the facility for the 2024-2025 period were cleared at a price of Eur3.57/MWh.
"All the volume has been allocated, so the demand is actually there," said one UK-based trader of the French auctions. "But clearly the volatility is less big compared to 2023, and on top of this the summer-winter spread was way higher last year... this is why you see less aggressive buying, clearly they are not in the money anymore and the intrinsic value of the storage is way lower."
Indeed, the spread between the Summer 2025 and Winter 2025 contracts at the Dutch TTF hub - Europe's benchmark - has narrowed steadily since February began, with Platts having last assessed this at a discount of 54 euro cent/MWh on Oct. 23.
This summer-winter spread had averaged minus Eur1.5/MWh between Jan. 1-Oct. 23, 2024, compared to an average spread of minus Eur2.6/MWh over the same period last year for the Summer 2024 and Winter 2024 products.
Another source agreed that current pricing dynamics left it difficult to economically justify storage costs.
"With the Sum25/Win25 spreads fluctuating around [minus] 50 cents, storage players will barely make any margin," a French portfolio manager said. "The best thing to do now is to sell the summer and buy winter. Last year, storing gas cost around Eur6.5/MWh. So, it's in the interest of storage players that [the summer discount] widens."
Auction results so far reflected subdued interest for storage capacity across the broader European market, leaving an even greater importance on wider summer-winter spreads to support operational costs.
On the German THE, for example, Platts assessed the Summer 2025 discount to Winter 2025 at 84 euro cent/MWh Oct. 23, this compared to a Eur2.915/MWh discount for the Summer 2024-Winter 2024 spread on the same date in 2023.
"The current summer-winter values are not profitable compared with the price of the last auctions," one Germany-based trader said. "Some auctions have been postponed, so by the end of the year we might have many of them... it's a concern, the government or Trading Hub Europe may intervene."
The first UK-based trader added that while utilities would likely make use of storage at such costs to cover their consumption, other companies that would typically use storage to secure favorable arbitrage were less likely to use them.
"My take is that the arbitrage companies that subscribe to German storages cannot use these as economically, it won't work," the source said. "They aren't there to balance the system, they are there to get some value from the market," the source said.
Diane Elijah, analyst at Commodity Insights, pointed at growing supply risks including increased tightness in the global gas market due to LNG export project delays and the uncertainty around the Russia-Ukraine transit deal's future as key drivers of this tightening spread.
"Typically, storage capacity is marketed on a year ahead basis, so the summer-winter spread is the primary driver of the intrinsic value of that storage capacity" Diane said. "In the period to 2019, the operational cost of storage was widely assumed to be of the order of Eur1/MWh-Eur1.5/MWh. It seems clear that current market prices are not likely to be supporting the commercial operations of many storage facilities."
According to the latest data from Gas Infrastructure Europe, European storages were 95.31% full as of Oct. 22, with French and German inventories being filled to 95.24% and and 97.78% of their filling capacity, respectively, on that day.