The document discusses the value of gas storage and proposes ways to increase its future value in Europe. It notes that gas storage provides security of supply by ensuring physical gas availability and price stability. However, current valuation based mainly on short-term seasonal spreads risks undermining storage investments. The document proposes that Europe could benefit from more coordinated regional utilization of storage and a harmonized regulatory framework to incentivize needed investments.

1. The dilemma of gasThe dilemma of gas
storagesstorages
valorizationvalorization
EURASIAN
Milan, 31th
May 2017
Gabriele Lucchesi
Managing Director – Edison Stoccaggio SpA

2. 2
WHO WE ARE
WHAT IS THE VALUE OF A GAS STORAGE?
A POSSIBLE EXAMPLE FOR EU
CONCLUSIONS
Agenda
11
22
33
44

3. 3
Who we are1.

4. 4
Edison Stoccaggio - Overview1.
 Edison is Europe’s oldest Energy Company (130 years old) and one of the industry leaders in Italy,
employing approximately 3,000 people in more than 10 countries in the World.
 Since 2012, it is part of EDF (Electricité de France) Group.
 Edison Stoccaggio, incorporated in 2004, is the company of Edison’s Group involved in gas storage
activities for more than 30 years. It owns and operates 3 Storage sites in Italy under a concession
regime.
As of today, in Italy there are only 2 storage
operators:
►STOGIT (Snam Group): 8 storage sites, WG = 16
Gcm (of which 4,48 Gcm strategic reserve), 94% of
Italian system capacity;
►EDISON STOCCAGGIO: 3 storage sites, WG = 1,0
Gcm (of which 0,14 Gcm strategic reserve), 6% of
Italian system capacity.
All storage sites have been developed and built by
Edison Stoccaggio from depleted gas fields.

5. 5
SITE START OF
OPERATIONS
# WELLS COMPRESSION
(MW)
WORKING GAS(*)
(Mcm)
CELLINO 1985 5 2 115
COLLALTO 1996 17 12 560
SAN POTITO & C. 2013 11 14 330
TOTAL 33 28 1005
 The company today makes available a volume of seasonal working gas of 865 Mcm (~9,5 TWh), with
an additional 140 Mcmc of strategic reserves (~1,5 TWh).
 Constant increase services
offered (seasonal modulation,
strategic, network balancing) to
users on the national gas
market.
(*) including strategic reserve
Edison Stoccaggio - Main Features1.
Edison Hub Capacities
11 TWh

6. 6
2. What is the Value of a Gas Storage?

7. Gas storages are strategic assets for the continental gas system and concern public, valuable
and essential services.
Nevertheless, their development, realization and operation is a very challenging activity:
capital intensive projects with very long span of life (30+ years), exposed to changing in
market, political and regulatory landscapes over the life of a project;
thick and complex legislation to comply with:
 Mining law
 Seveso law
 Safety rules
 Environmental laws
regulatory framework: regulated TPA and legal / operational unbundling obligations;
sensitive relationships management with local communities /politics.
7
Gas storages need time to be developed and made available
for the market, and must be carefully planned
Rome wasn’t built in a day2.

8. 8
Source: Cedigaz 2015
Gcm
but…
In this scenarios, gas storages greatly enhance Security of Supply:
► gas is physically available: located close to demand, storage is an immediately available security tool
in preventing disruption, reducing extra costs for the system;
► price volatility mitigation: storages help to stabilize prices, mitigating the risk of price spikes and
reducing volatility;
► political tool: in case of political tensions, storages represent an important risk-mitigation measure in
the supply chain and a negotiation tool.
Gas Storages as a crucial tool for Security of Supply2.
After several years on a downward track, gas
demand is catching up again:
►economic outlook has improved;
►decarbonisation process;
►more competitive gas power generation (back-up
RES);
► steep decline of indigenous production;
► growing import dependency;
► persistent instability of geo political scenarios;
result into increasing concerns for continental
Security of Supply

9. 9
Though seasonal spreads are often the main
driver to value storages, they present some
substantial limits:
summer/winter spreads are a short term
signal, not necessarily always "rational“;
spreads cannot forecast exceptional events
(geo-political events, cold snaps,…);
spreads do not reflect Insurance Value of
Storages (guarantee of gas physical availability in
any moment);
 spreads do not consider the system efficiency (storages are located close to demand areas, lowering
network investment costs):
 PÖYRY 2012 estimation: without gas storages, transmission networks and importation infrastructure
would need to be significantly bigger – approximately 9% to 16%.
Gas storages have been increasingly competing with other sources of flexibility with
different physical features (LNG, import pipes, spot market, line pack,…).
Gas Storages as a Flexibility Tool2.
Spread Winter-Summer @ PSV (c€/smc)
17/03/2014 03/03/2015 16/03/2016 08/03/2017 Auction Day
*
* Historical data
*

10. 10
Excessive reference to short-term price signals results into a distorted valorization of storage
services often below the costs storage operators incur to operate and maintain their facilities
 Storage decommissioning is happening
 Storage capacities perceived to be abundant (but are current
injection/withdrawal peaks adequate?)
 Reduction of a crucial risk
mitigation tool
 Increased price volatility and
exposure to price spikes
 Impact of reliability of gas power
plants as back-up for renewables
energies
 Increase of investments in gas
transportation networks to
compensate lost flexibilities
 Increased of general costs in the
supply chain
 Impact on affordability of gas
Persisting low seasonal spreads risk to undermine the availability of storage capacities
in the longer term, thus eroding future security of supply in the EU
Valorisation on Seasonal Spreads - Consequences2.
Reduction of
Investments in
Storage Capacities
Impact on
Security
of Supply
Increased
Costs for
System and
Customers

11. 11
Increasing Future Value of Gas Storage
Gas storages are an important asset underpinning increasing role of gas power
generation as back-up of RES
2.

12. 12
THE ITALIAN FRAMEWORK FOR GAS STORAGES3.

13. 13
Snam SpA 2016
North Sea /
Netherlands Russia
Algeria
Libya
Caspian
area
Thanks to the key role and adequacy of storages,
during crisis domestic system has always positively
reacted (no need to cut gas consumption)
Security of Supply in Italy: a crucial issue3.
Commodity unavailability
Infrastructure unavailability
January 2006
Russian gas import reduction (Russia - Ukraine dispute)
January 2006
Russian gas import reduction (Russia - Ukraine dispute)
December 2008
Algerian gas import reduction (Transmed breakage)
December 2008
Algerian gas import reduction (Transmed breakage)
January 2009
Russian gas import reduction (Russia - Ukraine dispute)
January 2009
Russian gas import reduction (Russia - Ukraine dispute)
July 2010
Import from North disruption
(pipeline breakage in Switzerland)
July 2010
Import from North disruption
(pipeline breakage in Switzerland)
February 2011
Libyan gas import interruption for 9 months (Libya revolution)
February 2011
Libyan gas import interruption for 9 months (Libya revolution)
January 2013
Algerian gas import reduction (terrorist attack)
January 2013
Algerian gas import reduction (terrorist attack)
March 2013
Libyan gas import reduction (protests at Mellitah terminal)
March 2013
Libyan gas import reduction (protests at Mellitah terminal)
February 2012
Russian gas import reduction (Russia - Ukraine dispute)
+ cold snap
February 2012
Russian gas import reduction (Russia - Ukraine dispute)
+ cold snap

14. In the last 15 years, only 2
new storage sites have been
put into operation in Italy
January 2002
ENI Data Room
March 2001
Launch of the
tender by MED (*)
September 2002
Submission of the
project to MED
December 2004
Award by MED
December 2005
Launch EIA
procedure
December 2006
EIA – favorable advice of the Region
October 2007
EIA Decree
April 2009
Concession Decree
June 2010
Start of the works
May 2013
START OF
OPERATIONS
(*) Ministry of the Economic Development
2009 - 2010
Seveso Law compliance
Complex procedures for developing new projects3.
San Potito & Cotignola Storage Realization - Main Milestones
14

15. 15
Current Italian Framework for Gas Storage Investments3.
ITALYITALY
Italian gas storage system is based on a fully regulated framework where storage
investments have been incentivized and a certain level of revenues is guaranteed,
making operators more keen to invest, for the benefit and security of the gas system
and its consumers.
Italian gas storage system is based on a fully regulated framework where storage
investments have been incentivized and a certain level of revenues is guaranteed,
making operators more keen to invest, for the benefit and security of the gas system
and its consumers.
Storage CompanyStorage Company
STORAGE FEES
Annual Tenders
STORAGE
SERVICES
ShipperShipper
Balancing FundBalancing Fund
TRANSPORTATION
TARIFFS
PlantPlant
CAPEX
OPEX
ALLOWED REVENUES
RAB REMUNERATION
@REGULATED WACC
EFFICIENT OPEX
RECOVERY
DEPRECIATION
INCENTIVES (IF ANY)

16. Despite changed market scenarios, and differently from what is going on in Europe, the
utilization of gas storages in Italy has not lost momentum :
storage today is very cheap (and current low seasonal spreads are likely to go upwards);
“average” Shippers consider seasonal spreads but they visibly price the Insurance Value of
storages:
 Italy is known to be exposed to geo-political risk and remarkable weather swings;
 physical availability of gas is perceived as crucial;
increased flexibility in long-term import contracts is considered complementary to storages.
Unaffected Utilization of Storage Services3.
Italian Gas Demand (Mcm) Italian Storage Stock Level (Bcm)
16

17. Conclusions4.
17

18. 18
 Benefits from progressive development of
interconnections between Member States:
►more efficient utilization of storages at regional
level between Member States;
►services provided beyond traditional national
borders (cross border storages);
►An EU strategic storage?
 Need of an appropriate and harmonized
political/regulatory framework:
►granting physical access to
storages/transportation capacities at regional
level;
►taking into account differences existing between
markets in Member States;
►clearly identifying roles and responsibilities
between UE, Member States and Companies.
 Proposed revision of EU Regulation 994/2010 in the
framework of the Energy Security Package is a good
test (responsibility for SoS, supply standard, action
and emergency plans, solidarity principle,…).
The role of storages is evolving from national assets to regional/continental assets
Towards a Pan European market4.
Bigger market areas mean bigger need
of coordination
Who will be responsible for what?

19. Increasing role of gas storages in ensuring adequate Security of Supply in the next years
Careful assessment of peak capacities (rather than volumes) in the prospected
integration of EU gas networks
Storages facilities need to be timely planned and require long-term large financial
commitments
Market signals alone do not correctly valorize storages, need to keep a long-term vision
Growing need of clarity and greater harmonization of rules at continental level on the
part of Governments/Authorities
Investment protection issues have to be necessarily addressed and discussed at
political/regulatory level
Storage operators need
long-term certainty to
further invest
19
Conclusions4.
?

20. 20
THANK YOUTHANK YOU