Italy pays gas incentive for meeting 90% storage target

Gas grid operator Snam announced that Italy will introduce an incentive program at the beginning of this month in order to encourage companies to inject gas into storage following the end of the winter season when its sites were only 42% full.

The European Commission set an ambitious target of 90% filling Europe's gas storages by the 1st November to avoid supply shortages and shocks during winter.

The mandate has caused prices to be higher than normal for the summer months and often above winter contracts. This means that traders are less motivated to store gas, which prompts European Union countries negotiate storage targets.

Snam announced late Thursday that under Italy's incentive program, market operators who inject gas will receive any difference in the spread between summer and winter, if there is one.

ARERA, the Italian energy authority, announced on its website that the gas grid operator would publish a premium prior to each storage capacity auction.

ARERA said that the incentive scheme would be in effect until the level of filling reaches 90%.

Snam estimated that operators would need to inject 9.4 billion cubic meters of gas to storage in order to meet the 90% threshold.

Uncertainty surrounds the cost of this incentive scheme, but European gas rates fell to their lowest level in more than six months last Friday. This was in line with other declines in prices on other markets, after China announced retaliatory duties on U.S. products, fueling fears of global recession.

The European benchmark Dutch first-month contract traded at 36.45 Euros per Megawatt Hour, down 8% on Thursday and almost 40% from a February peak, according to LSEG. Francesca Landini is reporting, Susanna Twidale is editing and Barbara Lewis is a reporter.

(source: Reuters)