Large scale hydrogen storage - the market perspective

Today, the natural gas storage market is mostly based on market prices, using the forward price curve to value storage capacity either at physical hubs or at virtual hubs.

There are good arguments to say that this value based on seasonal spreads and short-term price volatility, does not reflect the full “value” of a storage product. Nevertheless  this is the dominant way that is used today in most countries in North-West-Europe.

In some countries like France and Italy, a price regulation is in place but the concept of market value remains an underlying component of these systems.

If we look back twenty years ago or more, the decision to build a storage was not based on a market value. It was based on long term contracts that were guaranteeing that the costs of building and running the facility would be paid by the customer. A completely different model, a cost-based approach.

The gas industry has also used frequently another pricing model that was based on alternative fuels, on a netback approach. This is the reason why most of the long-term gas supply contracts were initially indexed on oil products until long negotiations took place less than ten years ago to switch to gas market indexes. The netback approach could be a way to price hydrogen in the early years.

From a pricing perspective we can certainly draw some parallels to the natural gas market but not necessarily as it is today. The jury is still out on the pricing of hydrogen storage. Time will tell what type of pricing models between these three, or maybe even other models, we will be using.

To conclude on this Energy Spotlight series: drawing parallels to natural gas is definitely helpful but should not restrict our capacity to invent a new business model and regulation, that will be the most appropriate one for the emergence of a green hydrogen market.