France looking at ways to support gas storage to boost security of supply

* Operators struggle as gas storage spread narrows

* French industry, regulators discuss support mechanism

* Legislation due this summer, new system from 2017

By Geert De Clercq

PARIS, May 31 (Reuters) - France is looking at ways to provide financial support for the storage of natural gas because market prices for storage have fallen too low to guarantee security of supply, storage operator Storengy said.

Most European countries have underground gas storage sites that are filled in summer to provide enough gas in winter, when demand sometimes exceeds the capacity of pipeline systems.

But falling gas demand combined with new supply from pipelines and LNG ships has narrowed the spread between winter and summer prices from about 8 euros per megawatt/hour in 2010-11 to about 1-2 euros. This is below many European storage operators' costs, which are between 4 to 8 euros.

"The market is not pricing security of supply and the system value of gas storage," Cecile Previeu, head of French gas storage market leader Storengy, told reporters on Tuesday.

Previeu said France plans to finance gas storage via a charge on gas transport, but the industry is still in talks with regulators about the details.

The government had already outlined storage regulation its August 2015 energy transition law, but it has to come up with more details by August this year. The country's energy regulator would then set tariffs by the end 2016 or early 2017 for the new system to take effect for the 2017-18 gas season.

Italy, Spain and Belgium also regulate gas storage, while Britain, Germany and the Netherlands rely on market mechanisms.

Under a regulated system, firms like Storengy would still auction off storage capacity at the start of the year, but would receive additional payments from the government if the auction results did not cover their costs.

Storengy is Europe's biggest storage operator with capacity of 12.2 billion cubic metres and turnover of 1.2 billion euros ($1.34 billion). It (Other OTC: ITGL - news) operates about 75 percent of French gas storage capacity and is part of French utility Engie (LSE: 0LD0.L - news) .

Storage company TIGF, owned by Italy's Snam (Amsterdam: QE6.AS - news) , has a 20 percent French market share and Geomethane about 5 percent.

Precieu said that because of difficult market conditions, Storengy had stopped investing in new facilities in France and in Germany, where it has a 10 percent market share.

But it is continuing work to double the capacity of its storage facility at Stublach in the north west of England to 400,000 cubic metres. This will double its share of the British gas storage market to 10 percent.

It is also looking at possible projects in developing markets such as China, India and Mexico. ($1 = 0.8976 euros) (Reporting by Geert De Clercq. Editing by Jane Merriman)