Europe has been working hard to fill its gas reserves before winter arrives, but the painful truth is that national governments have limited control over those reserves, reports Bloomberg.
Only about 10% of the gas in storage facilities from Italy to the Netherlands is under the direct control of public authorities via national strategic reserves, according to data collected by Bloomberg. The rest is in the hands of international trading companies, utilities and industrial groups, and the companies are free to sell the gas to the highest bidder, even if it is another country. This means that a cold wave in Germany could trigger a rush for gas in neighboring countries and would test the solidarity of Europe.
The gas network of the region should function in such a way as to allow deliveries between countries. As long as there is enough fuel in the system, it should balance out. But the system did not operate in a scenario like the current crisis.
“The practical aspects of the system have not been really tested until now. A lot will depend on how severe the coming winter will be,” said Graham Freedman, analyst at Wood Mackenzie consulting firm, writes Agerpres. According to him, if it will be very cold, gas stocks could drop below 10% at the end of March. Such a situation could trigger a rush for deliveries before next winter.
Even though Europe does not have transparent data on who owns stored gas, most of it is owned by utility companies, including state-controlled firms, which will have to take gas out of storage to supply households and industrial customers, support the sources close to this file. A smaller amount of gas is controlled by trading companies such as Glencore Plc and Vitol Group, whose interest is to maximize the value of their portfolios. But they are relatively minor players because of the associated high costs and new regulations that have created even more obstacles, said the sources, who spoke on condition of anonymity.
Concerns about winter gas supplies have spurred efforts to fill storage, which are now near their peak and above their five-year average.
But to avoid the risks, the governments could trigger the state of emergency. In such a scenario, Germany’s Federal Grid Authority, like other national authorities, would have the power to order whether the gas remains in storage or is removed. This limitation could leave neighboring countries in a crisis situation.
Germany is dependent on other countries because its deposits cover only 25% of annual demand. Poland is also in a precarious situation. The fifth most populous country in the EU, with 38 million inhabitants, has smaller gas storage capacities than Slovakia, a country with a population of 5.5 million inhabitants.
If the system works, prices will rise where demand is strongest, and as supplies move to the highest-priced markets, prices in countries where gas reserves are accessed would rise in response, Niek says. van Kouteren, trader at the Dutch energy company PZEM NV. “It remains to be seen how efficient the market is,” says Niek van Kouteren.
Price distortions are likely to emerge in the coming months as supplies from Russia, which last year covered 40% of the continent’s needs, have been dramatically reduced. This increases the prospect of gas being shipped from one market to another, so as temperatures drop large markets such as Germany and Poland could attract supplies from Italy, Austria and the Netherlands.
Even though it has Europe’s largest storage capacity, Germany has traditionally tapped into Austria’s reserves so that Europe’s largest economy can heat its homes and keep its factories running. Austria tends to function as a supplier during the winter, with over two-thirds of its storage capacity frequently being made available to other countries. The Czech Republic and Hungary also have storage capacities greater than their domestic needs.
Tags: gas, europe, winter,
Publication date: 20-10-2022 12:50
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