Gas storage at it best: despite the strong storage draws through the heating season, summer-winter spreads are tightening up, looming on the economics of storage facilities.
As a result of a cold and prolonged heating season, European storage withdrawals increased by over 55% compared to the 2019/20 gas winter, whilst inventory levels have fallen now 20% below their 5-year average.
How did this translate in the perceived market value of gas storage?
The market value of seasonal storage is largely determined by the summer-winter spreads, i.e. the differential between front winter contracts and summer contracts.
Somewhat counterintuitively, the strong storage draws during the last heating season are now tightening up summer-winter spreads as low storage levels provide a greater support for the summer gas prices and hence reducing their discount vs winter contracts.
This is in sharp contrast with last year, when we saw storage spreads climbing to decade highs, as high inventory levels at the end of the heating season together with covid lockdowns depressed further summer contracts.
As such, storage spreads are now four times below their last year’s levels…
What is your view? What is the value of gas storage? And how should it be measured?
Source: Greg MOLNAR