The European Union is set to ease its gas storage refilling targets for member countries. This decision comes as a response to market disruptions that have discouraged countries from increasing their gas reserves for the winter months.
On Wednesday, the European Commission announced that it aims to provide countries with more flexibility regarding the timing and quantity of their gas storage refills. This is particularly relevant as doubts arise about whether the EU will meet its target for gas storage this year.
The Commission stated, “More flexible filling strategies, with guidance from the Commission, can help alleviate system pressure and reduce market distortions related to gas storage refilling. This will assist countries in refilling under better purchasing conditions, ensuring a reliable supply.”
Gas storage plays a crucial role in the EU, especially during winter when demand surges, helping stabilize the market. Following Russia’s invasion of Ukraine, the EU instituted a minimum storage target requiring countries to fill at least 80% of their storage capacity in 2022, escalating to 90% for subsequent years, with a deadline of November 1 each year.
However, traders have expressed concerns that this policy has disturbed the natural gas market, driving prices up in the summer while disincentivizing countries from increasing their storage capacities this year. The regulation has led to simultaneous purchasing pressure among countries, skewing the market.
One trader pointed out that the regulation meant to protect the market next winter has instead caused earlier distortions.
This winter, several factors—including colder weather, lower wind power generation, and reduced gas supply from Russia via Ukraine—have compelled the EU to withdraw more gas from storage than in previous years. Traditionally, gas prices in summer are lower, providing an opportunity for traders to buy and store gas for winter resale. However, the challenge of meeting the EU’s targets has resulted in summer prices surpassing winter prices this year.
According to Laura Page, a gas and LNG insights manager at a commodities data firm, this situation creates a significant challenge for Europe, indicating that traders might struggle to profit from storing gas.
The summer premium over winter prices peaked at over €6 per megawatt-hour at the end of January, marking an unprecedented high, although it has since decreased.
As of Monday, the EU’s gas storage was only 40.3% full, notably more than 20 percentage points lower than the same time last year. Florence Schmit, an energy strategist at Rabobank, highlighted that with current market conditions, it is plausible for the EU to not reach its 90% target.
Countries with specific storage targets, like Austria and the Czech Republic, have different averages that are generally lower. In contrast, nations without such targets are facing uncertainties due to the summer price premium, according to David Luff, a senior manager at Argus.
In Germany, where there is a law mandating a 90% storage fill by November 1, more than half of the storage capacity has not been booked from April 25 onward. Last year, summer prices exceeded winter prices amid Europe’s energy crisis, causing traders to hesitate in buying gas for storage. This issue led to government interventions in some regions.
In 2022, a consortium of transmission system operators in Germany bought 50 terawatt-hours of gas through government backing, spending nearly €9 billion at a unit price much higher than winter prices. They have yet to recover these costs fully.
Kerstin Andreae, head of the German energy lobby BDEW, noted that the stringent storage targets were initially necessary due to the crisis spurred by Russia’s aggression. However, she believes that the current situation has improved, and Germany should lower its storage requirement from 90% to 80%, arguing that legal requirements heavily influence market behavior and can create misleading incentives for seasonal supply.