EC to prepare gas demand reduction plans for possible Russian supply halt

The European Commission will look to create an EU-wide gas demand reduction plan that could be implemented in the event of a full disruption in the supply of Russian gas, it said May 18.

As part of measures proposed to help the EU wean itself off Russian fossil fuels, the EC also said additional gas infrastructure spending would be needed to ensure all member states were better interconnected.

Russia has already halted gas supplies to Poland and Bulgaria, with Finland expected to lose access to Russian gas later this week, due to changes in the payment framework.

European gas prices remain at sustained highs due in part to uncertainties over Russian deliveries, with the TTF month-ahead price assessed by S&P Global Commodity Insights on May 17 at Eur94.50/MWh, a year-on-year increase of 250%.

The EC said that in the event of a full disruption of Russian gas supplies, further exceptional measures may be needed to manage the situation.

"The EC will facilitate setting up a coordinated EU demand reduction plan with pre-emptive voluntary curtailment measures to be ready in case an emergency arises," it said May 18.

"In a spirit of solidarity, less affected member states could reduce their gas demand for the benefit of more affected member states," it added.

Price cap

The EC also said an administrative price cap on gas could be necessary at EU level in response to a full supply disruption.

"If introduced, this cap should be limited to the duration of the EU emergency and should not compromise the EU's ability to attract alternative sources of pipeline gas and LNG supplies, and to reduce demand," it said.

The EC also said that temporary "circuit breakers" and emergency liquidity measures to support effective functioning of commodity markets could be used.

The EU's energy commissioner Kadri Simson said exceptional times required exceptional measures.

"As Russia pursues its unprovoked war in Ukraine, we must also plan for gas supply disruptions and their impact with solidarity measures and possible price interventions," Simson said.

The EU has also been working with international partners to diversify supplies for several months, dating back to before Russia's invasion of Ukraine on Feb. 24.

As part of its response, it also created an EU Energy Platform to enable voluntary common purchases of gas, LNG and hydrogen by pooling demand, optimizing infrastructure use and coordinating outreach to suppliers.

"As a next step, and replicating the ambition of the common vaccine purchasing program, the EC will consider the development of a 'joint purchasing mechanism' which will negotiate and contract gas purchases on behalf of participating member states," the EC said.

It said it would also consider legislative measures to require diversification of gas supply over time by member states.

More infrastructure

The EU has a relatively well interconnected gas market, though some parts of the bloc remain less well connected than others.

The EC said that while the TEN-E initiative had helped better interconnect EU gas infrastructure, more investment would be needed in addition to funds available under the Projects of Common Interest (PCI) program.

"Limited additional gas infrastructure, estimated at around Eur10 billion [$10.5 billion] of investment, is needed to complement the existing PCI list and fully compensate for the future loss of Russian gas imports," it said.

It said the substitution needs of the coming decade could be met without locking in fossil fuels, creating stranded assets or hampering climate ambitions.

The EU Council on May 16 adopted the revised regulation on funding for priority EU energy projects, the final step in the TEN-E approval process.

"Mitigating the few remaining bottlenecks will also increase the European gas system's resilience and flexibility," the EC said.

It said the biggest challenge would be to meet demand in Central and Eastern Europe, but also in the northern part of Germany, if Russian gas imports ceased.

It said the development of a deodorization unit enabling gas flows from West to East between France and Germany would remove a key bottleneck to reduce Russian gas dependence in Central Europe.

"In combination with gas infrastructure reinforcements to increase export capacity from Belgium to Germany, this would enable full utilization of the LNG capacities in Western Europe to address dependence on Russian gas also in the Central and Eastern European regions," it said.

Infrastructure and regulatory limitations also prevent southwestern countries from cooperating with countries in northwestern, Central and Eastern Europe, it said.

A second LNG terminal in Poland -- currently on track to come online in 2025 -- would also alleviate any additional needs of the Baltic states by freeing up capacity in the Klaipeda LNG terminal in Lithuania.

Southeast Europe, the EC said, would also benefit to some extent from the FSRU terminal in Poland and the expansion of the capacity of the LNG terminal in Croatia.

"Further supplies to the region could come through full-scale TAP expansion , but upgrading TAP would require accelerated additional infrastructure investments in the Italian transmission grid," it said.