The gas field of South Kavala could be soon the first Underground Gas Storage infrastructure in Greece.

Gas storage is well developed across the EU. Around 140 Gas Storage facilities are operational in various Member States. Over 50% of total storage capacity in the EU is concentrated in three Member States: Germany, Italy and France. The same three Member States have the highest concentration of storage sites and together account for 54% of the total number of storage facilities in Europe. In terms of working gas volume, around 69% of storage facilities are depleted gas fields. The EU is heavily depending on imports from specific countries (Russia, Norway, Algeria and Libya) with a domestic production, with LNG fulfilling a small – so far – part of the demand. Therefore, underground gas storage is one of the key tools for reducing and managing energy risks as it can be used to collect strategic reserves in case of disruption of the gas supplies. Moreover, due to the fact that gas demand is subject to important fluctuations, underground storage can significantly contribute in stabilizing markets by storing gas during periods of reduced demand in order to use it during periods of high demand.

Despite the advantages of gas storage, in Greece there is not yet any underground gas storage facility in operation. This makes the project of South Kavala of utmost importance. South Kavala field is an almost depleted gas field situated near Thassos Island and the Prinos offshore oil field in the Thracian Sea. It has been discovered in December 1972 and from November 1992 onwards it is exploited by Energean Oil & Gas on the basis of successive concession agreements with the Hellenic State and the company Hellenic Hydrocarbon Resources Management (HHRM). The field of South Kavala can be transformed to an underground storage facility of a total capacity of approx. 720 mil.m³ with a Withdrawal Rate of 4 mil.m³ / day and an Injection Rate of 5 mil.m³ / day. The cost of such investment is estimated to approx. 400 mil. Euros. In view of this perspective, by a decision of the Interministerial Committee for Restructuring and Privatizations of October 2011, all rights for the concession of South Kavala field as underground storage facility have been transferred to the Hellenic Republic Asset Development Fund (HRADF), with the aim to organize an international tender in order to choose the prospective investor on the basis of the best market offer.

In any case, organizing a successful tender presupposes that the necessary regulatory framework is already in place. According to article 93 of the Law 4001/2011 as in force (the Energy Law) underground storage facilities in Greece can be either integrated to the National Gas Grid (NGG) or operate as Independent Gas Grid (IGG). For natural spaces belonging to the Hellenic State, such as the South Kavala field, prior concession is a condition for both options (NGG or IGG). According to article 93 of the Energy Law, the conditions of concession and exploitation of such underground fields are further determined by Joint Ministerial Decisions of the Ministry of Energy and the Ministry of Finance.

When considering the possibility of exploitation of the South Kavala field as underground gas storage facility, the main concern is to choose the appropriate regulatory model. In general, when storage services are in abundance of offer, in other words, when there is a real market for storage, it is appropriate to apply a commercial model for third party access (TPA). Then prices and usage can be determined, for instance, through competitive auctions or simply by market conditions. Conversely, if storage facilities are in a monopolistic situation and, in general, if there is scarcity of offer for storage services, a regulated TPA regime would be more appropriate in order to avoid abuses. Article 33 of the directive 2009/73/EC (the Gas directive) leaves the discretion between commercial and regulatory TPA to Member States. This is justified because of the fact that the conditions of storage services vary significantly from one Member State to another.

For South Kavala, as it is expected to be in a quasi-monopolistic situation, a regulated TPA seems more appropriate. That means that the project will be administratively awarded a Required Revenue (RR) reflecting the just recovery of the subjacent investment. The RR will be basically financed by the end users of gas. However, the RR will be partly financed also by the users of the storage infrastructure who will pay to the operator for storing their gas. These tariffs for storage will be determined by decision of the regulatory authorities. Consequently, we expect that the methodology and the determination of the RR and its recovery, the definition of the applicable tariffs for storage and the determination of a minimum of free capacity of storage for energy safety reasons will be set up by decisions of the Regulatory Authority for Energy (RAE). Recently article 93 of the Energy Law has been modified providing expressly that the percentage of the RR of the underground storage facility that will be recovered by the end users will be determined by a decision of RAE on the basis of the estimated contribution of the storage infrastructure to energy safety and efficiency. We expect that soon (hopefully by the end of the year) the long awaited Joint Ministerial Decision (JMD) for the operation of the underground storage facility of South Kavala will be issued.

These legal developments open the way for launching the tender for the exploitation of the South Kavala field within the first semester of year 2020. The UGS of South Kavala is not the only gas infrastructure project in Greece. However, combined with other important gas projects (e.g. major pipelines such as TAP and IGB, the FSRU of Alexandroupoli and the upgrade of Revithoussa), it can contribute significantly to the enhancement of security of gas supply and boost competition in the Greek gas market.

More Work Highlights