The design of a storage tender product intended to support the German gas stockbuild this year may retain too many risks to be interesting to many market participants.
German market area manager THE last week announced the details of a planned product that it could tender to subsidise the stockbuild. Seasonal spreads across Europe are inverted, providing no incentive for firms to inject this summer. Under German law, gas market area manager THE is tasked with ensuring the country reaches a 90pc stockfill by 1 November, and can subsidise injections or — as a last resort — buy and inject gas itself.
Under the proposed product, firms would bid a minimum summer-winter spread for "economical storage filling", THE said. If the winter premium is lower than this or the seasonal spread remains inverted, THE would pay the difference between the realised spread and firms' requested minimum spread. But THE would introduce a cap on an inverted spread "in order to save costs", the market area manager said, limiting returns on days of large negative spreads and potentially leaving firms open to financial losses.
Penalty regime yet to be finalised
THE is yet to publish the consequences if a successful participant in the tender does not fully fill their subsidised capacity by 1 November.
Several scenarios could inhibit firms from fully filling their tendered capacity. Firms are especially concerned about a situation where an inverted seasonal spread remains wider than THE's spread cap for long periods, and wide enough to disincentivise injections, even for firms covered by the tender. The proposal does not provide any leeway in such a scenario.
If THE introduces a strong penalty for firms who do not — or are unable to — fill their capacity, this could weigh on interest in the proposed tender. On the other hand, there is little incentive for THE to set weak penalties, given its legal requirement to intervene if storages are not filled.
Internal reserve price could weigh on tender outcome
If firms see large risks in the tender, they may submit higher bids in order to recoup potential costs, but THE will set an internal reserve price.
THE pays out the inverted spread, plus a firm's minimum spread. But if invertedspreads are wider than the cap set by THE, firms could only recoup all their costs if they offer a large enough minimum required spread. As a result, firms may seek to bid higher in the tender to offset this risk.
But THE will set a reserve price for the auction, which will not be communicated in advance. If this is lower than the risk premiums that market participants may be hoping for, it could weigh on the success of the tenders, leaving capacity unsubsidised.
That said, THE has an incentive to maximise uptake, even at high prices, as it may otherwise have to directly enter the market itself. THE last bought gas on the spot market to fill storage in 2022, making an overall loss of €6.3bn, and might be reluctant to do so again, even though it can now hedge on forward markets. All costs of the product would be recouped through Germany's storage levy, THE confirmed to Argus on Tuesday.
Proposal could be driving summer-winter spreads
The summer-winter spread for the 2025-26 storage year has widened considerably since THE published its proposal, reaching a recent high of €4.64/MWh on 24 January.
Many market participants believe THE's proposal has driven the widening of the spread (see graph). It had previously been unclear in what way THE was preparing to act over the inverted summer-winter spread, market participants told Argus. While THE is yet to announce any tenders or confirm that any will take place, many market participants have taken the detailed proposal as an indication that THE is preparing to support injections again this summer.
A more predictable market participant — THE — which will have to buy or subsidise gas purchases this summer at almost any cost, may have also influenced buying activity for this summer, traders said. And THE being legally bound to ensure a 90pc fill level across German storage sites is contributing to keeping winter prices down, market participants said.
Some traders have speculated that market participants could be trying to influence the spread cap that THE puts forward in its tender by widening the forward spreads. That said, the subsidies eventually paid out consist of realised spreads — factoring in the spread cap — and the bids firms submit to THE. After THE publishes the spread cap, bidders could reflect a lower or higher cap in their bids to the THE, leaving little incentive to influence the cap itself, other market participants have pointed out.
