The EU plans to ease member states’ gas storage replenishment targets. This is because they are trying to reduce the disruption in the market that has prevented stocks from halting due to the winter.
The European Commission said Wednesday that the country would like to provide greater flexibility in when and how much storage it accumulates as it speculates that the bloc may not be able to reach its mandated target this year. Ta.
“With the support of the committee, more flexible filling trajectories will help reduce system stress and support market distortions related to gas storage replenishment, replenishment under better purchasing conditions, and supply security ” said the committee. It did not provide details of that plan.
Gas in storage serves as a key buffer for the block during the winter when demand is highest and reduces market volatility. After Russia’s full-scale invasion of Ukraine, the EU introduced a national minimum target of 80% in 2022, and since then hit 90% of the country by November 1st.
However, traders warn that the policy will disrupt the natural gas market, boost prices over the summer, and prevent gas accumulation in storage this year.
Traders say the regulations have contributed to market distortions by forcing countries to simultaneously purchase.
“In fact, the regulations put into effect to protect the market next winter actually distorted the market much earlier,” said one trader.
This winter, with a combination of cold weather, low power generation from the wind, and loss of Russian pipeline gas through Ukraine since the New Year, the region had to draw from its storage more than it was last year.
Natural gas in Europe has historically tended to be cheaper in summers when demand is low. It has provided traders with an incentive to buy and store gas and sell it during the peak winter heating season. However, this year the need to buy more gas to meet EU targets has led to an unusually large number of markets where summer gas prices are higher than winter gas prices.
This is a “true European headache.” This is because it shows traders that “storing gas may not be able to make money.”
Winter prices reached over 6 euros per megawatt hour at the end of January, according to pricing agency Argus.
EU gas storage was 40.3% as of Monday, below 20% points last year. “Looking at the current market situation, the EU said it cannot meet its 90% target,” said Florence Schmidt, an energy strategist at Rabobank.
Some countries, such as Austria and the Czech Republic, have separate storage targets based on average consumption, which tends to be lower. But in countries without these intermittent targets, summer price premiums “create a lot of uncertainty,” says David Luff, senior manager of analytics and consulting at Argus.
In Germany there is a law that forces 90% of storage to be filled by November 1, and more than half of storage capacity since April 25 has not been reserved, he said.
Summer prices exceeded winter prices in 2022 amid the continental energy crisis. Traders were prevented from purchasing gas to store them, and in some countries government intervention was required.
In Germany, a consortium of power transmission system operators on behalf of the government purchased 50 TWH worth of gas in 2022, spending nearly 9 billion euros at a unit cost of 174/MWH, far exceeding that winter price. We haven’t fully recovered the costs yet.
“Following the 2022 Russian war of attacks, the targets at the level of gas storage facilities have been justified in certain crisis situations. (However) the situation has been eased,” said the German Energy Lobby. said Kerstin Andreae, chairman of Group Bdew. The group is calling for a reduction in German legal storage requirements to 80%.
“Legal requirements have a significant impact on market behavior and are false incentives for seasonal compensation,” she said. “Reducing the target for national filling levels for gas storage facilities to 90-80% will help calm the market.”
