Analysts cautioned that if Russia’s deliveries are halted in a dispute over payment terms, Europe’s plans to build reserves and assure gas supplies for next winter might be thrown off.
Russia generally supplies roughly 40 per cent of Europe’s gas, but since Moscow’s invasion of Ukraine, the risk of supply disruption has escalated in recent weeks, with G7 members rejecting a demand for payment in roubles.
According to the European Commission, gas in storage accounts for almost a quarter of the gas consumed in Europe during the winter months, when it is a key heating fuel.
It has proposed legislation requiring gas storage firms to fill sites to at least 80% capacity by November 1 in order to ensure supplies for next winter.
However, with inventories only about a quarter full and below the five-year average of just under 34 per cent for this time of year, the objective appears exceedingly tough to achieve without Russian supplies.
“The target of 80% by Nov. 1 is achievable as long as at least some Russian gas continues to flow,” said Jack Sharples, a Research Fellow at the Oxford Institute of Energy Studies. “But I think that in terms of doing it without Russian gas, it’s just not feasible.”
Germany, Europe’s top gas consumer, has set a goal of 90 percent by November, relying on Russia for around half of its needs. Its gas reserves are currently 26 per cent full.
However, in an unprecedented action, the UK activated an emergency plan on Wednesday that may result in power rationing if Russia’s gas shipments are hindered or suspended. find out more
If the European Commission announces an EU-wide or regional gas supply emergency – which it can do if at least two countries have already issued their own declarations – immediate supply emergencies will take precedence over storage refills, with objectives being waived.
“If Russian flows stop tomorrow and then don’t restart until next winter or for the whole year or more, then storage will not be able to fill to the 80% level,” said Kateryna Filippenko, Principal Analyst, Global Gas Supply at Wood Mackenzie.
“Most likely in the EU storage will end up somewhere slightly over half, maybe around 54%.”
This, according to Filippenko, might cause problems for industry because Europe would strive to protect vulnerable consumers by limiting industrial gas use by up to a fifth.
The Russian state-owned gas corporation Gazprom controls numerous northwest European storage sites, whose reserves are at their lowest in at least five years, complicating the storage strategy even more.
Gazprom owns a third of Germany’s gas storage capacity.
“We think Gazprom is unlikely to try to fully refill these sites given progressively lower contractual demand for Russian supply and little appetite for Gazprom to sell on the spot market,” said Leon Izbicki, Associate, European Natural Gas at Energy Aspects.
In the event of a shortage, German law permits Trading Hub Europe (THE), a gas market hub regulated by the country’s energy regulator, to keep its own purchases in storage tanks that are empty or below specified filling levels.
“Market managers such as THE are likely to take this space under the ‘use it or lose it’ principle…and fill this capacity,” Izbicki said
The European Commission has also proposed that by November 1st, 2023, all gas storage installations should be 90 per cent occupied.
By 2027, the EU hopes to reduce its reliance on Russian gas by two-thirds and eliminate all Russian fossil fuel imports.
(Adapted from Reuters.com)