Intermediary EU gas storage targets 'essential' tool during crisis: EC

Intermediary targets for filling EU gas storage sites are an "essential" tool to ensure storage is sufficiently used as part of security of supply measures, a senior European Commission official said May 17.

The EC in late March proposed that member states fill their storage sites to 80% of capacity by Nov. 1, 2022, and to 90% of capacity by Nov. 1 in subsequent years, with intermediary targets set throughout the year.

However, there has been push back from member states and industry on the use of trajectories, with concern that prices would spike as countries hurry to reach the intermediary targets, temporarily pushing up demand.

Remi Mayet, the EC's deputy head of unit at the energy directorate, said Europe had not sufficiently monitored storage levels in 2021, which had led to the low level of storage last winter.

EU stocks were built to just 77% of capacity in October last year and were drawn down to just 25% of capacity by the end of winter in March 2022, according to data from Gas Infrastructure Europe.

"The trajectory [proposal] is a direct consequence of the unfortunate experience of the last winter," Mayet said during a webinar organized by the Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER).

"Collectively we did not pay enough attention to the level of storage, and did not take action, which contributed dangerously to the situation in which we were at the beginning of winter," he said.

Mayet said that, without trajectories, EU member states would have difficulty in meeting the November targets.

"It is better for everybody not to wait until the last moment to start to take action," he said, adding that the trajectories had been designed in a flexible way to reflect the technical characteristics of storage sites.

"This is a tool that is absolutely essential now in this crisis situation to monitor and make sure storage works well in Europe," he said.

EU gas storage sites were 40% full as of May 15, according to GIE data.

Concerns about filling storage sites this summer contributed to record high prices across Europe in recent months.

The TTF month-ahead price reached a record Eur212.15/MWh ($221/MWh) on March 8, according to Platts price assessments by S&P Global Commodity Insights, and was last assessed May 16 at Eur92.55/MWh, still 250% higher year on year.

Missed targets

Asked what the EC proposed to do if member states failed to reach the targets, Mayet said he was confident that in 99% of cases member states would address EC concerns and remedy the situation.

Mayet said that, if the deviation from the target persisted over a certain period of time, the EC would first issue a warning to the member state.

"If it persists repeatedly after several months, if it is serious enough to endanger the achievement of the targets, and if no objective reasons are given by the member state for such a deviation, then the EC would take action," Mayet said.

Storage capacities across the EU vary widely, with the top five capacity holders (Germany, Italy, the Netherlands, France, and Austria) between them accounting for almost 75% of the EU total.

This means a higher burden on these member states to reach filling targets compared to those with much smaller storage capacity.

Benoit Esnault, vice-chair of the ACER-CEER gas working group, told the webinar that ACER was promoting to include some elements relating to gas demand to avoid being constrained too much by the storage capacity.

Esnault pointed to countries where storage capacity is greater than the annual consumption, which is the case in Austria for example.

"Having this 90% [target] on the shoulders of one country would not be feasible," he said. ACER has also suggested that trajectories for 2022 should be indicative, not binding.

Market forces

Doug Wood, Gas Committee chair at the European Federation of Energy Traders, also warned of the impact on the gas market of an over-regulated storage sector.

"To have fixed trajectories and fixed control points will drive up prices and remove the optionality of being able to meet the targets," Wood said.

"We have to leave a substantial amount of flexibility in the market and some optionality around how these targets are met, or the cost of providing this level of security will be much higher," he said.

Wood also said there needed to be more market-based incentives to help fill storage, warning that market players could otherwise leave the task of filling sites to the grid operators.

He also said that storage filling last year was mostly done in a normal way, reaching reasonable levels, and that it was only the behavior by Russia's Gazprom that left the overall volume level lower than expected.

Gazprom failed to refill most of its storage capacity in Europe in 2021, dragging down the total level of fullness across the EU.

Wood said there was still a substantial amount of filling by other players last year. "The market will continue to do this. We've seen the market responding in advance of obligations to create levels of fullness," he said.

"We have to be careful not to kill what the market is doing itself by imposing stricter obligations," he said. "This is a tricky balance -- we need some kind of safeguards and rules, but let's not go straight for strict targets, trajectories and control points."