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The EU plans to relax its gas storage refilling targets for member states, as it tries to reduce market disruption that had disincentivised countries from stocking up for the winter.
The European Commission said on Wednesday that it wanted to give countries greater flexibility over when and how much storage to build up, as speculation mounts that the bloc may not be able to reach its mandated target this year.
“More flexible filling trajectories, with the support of the commission, can help to reduce system stress and avoid market distortions linked to gas storage refilling, supporting refilling at better purchasing conditions and security of supply,” the commission said. It did not provide further details on its plans.
Gas in storage acts as an important buffer for the bloc during the winter months when demand is highest, reducing market volatility. The EU introduced a minimum target of 80 per cent of storage capacity per country in 2022 after Russia’s full-scale invasion of Ukraine, and 90 per cent for each year after that, to be hit by November 1.
But traders have warned that the policy is disrupting the natural gas market, pushing up prices during the summer and disincentivising the build-up of gas in storage this year.
Traders say the regulation contributed to the distortion of the market by forcing countries to buy at the same time.
“In effect, the regulation enforced to safeguard the market next winter has actually distorted the market much earlier,” said one trader.
This winter, a combination of colder weather, low power generation from wind and the loss of Russian pipeline gas through Ukraine since the new year has meant the region has had to draw more from its storage than in previous years.
Natural gas in Europe has historically tended to be cheaper in the summer when demand is lower. That has in the past provided an incentive to traders to buy and store gas, and then sell it at a profit during the winter peak heating season. But the need to buy more gas this year to meet the EU’s target has led to an anomaly in the market where summer gas prices are higher than those in winter.
This is “a real headache for Europe” because it signals to traders that they “may not make any money from putting gas into storage” this year, said Laura Page, gas and LNG insight manager at commodities data firm Kpler.
The summer gas price premium over winter prices reached more than €6 per megawatt hour at the end of January, its highest ever, according to pricing agency Argus, although it has since narrowed.
The EU’s gas storage was 40.3 per cent full as of Monday, more than 20 percentage points below where it was last year. “If you look at the current market conditions, there is a possibility” that the EU will fall short of its 90 per cent target, said Florence Schmit, an energy strategist at Rabobank.
Some countries such as Austria and the Czech Republic have individual storage targets based on their average consumption, which tend to be lower. But in countries without these derogated targets, the summer price premium was “creating a lot of uncertainty”, said David Luff, senior manager of analytics and consulting at Argus.
In Germany, which has a law forcing it to fill 90 per cent of storage by November 1, more than half the storage capacity from April 25 onwards has not been reserved, he said.
Summer prices previously surged above winter prices during 2022, amid the continent’s energy crisis. Traders were disincentivised from buying gas to put into storage, and, in some countries, government intervention was required.
In Germany, a consortium of transmission system operators, on behalf of the government, purchased 50 TWh worth of gas in 2022, spending nearly €9bn, at a unit cost of €174/MWh, well above prices that winter. It has yet to fully recover the costs.
“The level targets for gas storage facilities were justified in the specific crisis situation following the Russian war of aggression in 2022 . . . [but] the situation has now eased,” said Kerstin Andreae, chair of the German energy lobby group BDEW. The group has called for Germany’s legal storage requirement to be lowered to 80 per cent.
“The legal requirements have a major impact on market behaviour and are a false incentive for seasonal coverage,” she said. “A reduction in the national filling level targets for gas storage facilities from 90 to 80 per cent could help calm the market.”