EU plan to reduce energy prices

Standard wholesale gas prices in Europe rose more than 500 percent this year, reaching record levels in October, as sparse gas supplies also coincided with growing demand from economies recovering from the COVID pandemic. 19. Despite the fact that prices have fallen, they continue to be high.

Most European governments responded with emergency measures, such as subsidies or tax breaks, in order to protect their citizens from high energy bills.

Some countries, including Spain and France, have also demanded that the EU allow them to jointly buy gas and create strategic reserves in order to increase their supplies.

European Commission is expected to propose a reform of EU gas market rules this week. EU energy policy chief Kadri Simson has said the reform will include a framework that will enable joint procurement of strategic gas reserves. An EC document, seen by Reuters, states that any joint gas purchases between the states will be made voluntarily.

Why are gas reserves important?

The EU has the capacity to store up to 117 billion cubic meters of natural gas, or about one-fifth of its annual consumption, according to Gas Infrastructure Europe data.

Gas storage depots are usually salt mines or gas fields, which no longer have gas. Gas storage is needed to balance fluctuations in daily and seasonal demand. Also, gas stored in warehouses can be used when there are outages of gas supply, when there are major outages in infrastructure and especially when there is high demand during cold weather.

The EU’s gas storage capacity is unevenly distributed in large facilities located in France, Germany, Italy and the Netherlands, but the pipeline connection means that bloc member states can use the gas stored for years in neighboring states.

During the summer months, when wholesale prices are usually lower, gas is usually placed in storage to be used during the winter, when demand and prices rise.

This year was extraordinary, as gas reserves were lower for a number of reasons, including extremely high prices, meaning gas was sold rather than stored in warehouses.

What are strategic gas reserves?

Simply put, states can jointly buy gas and share gas reserves with each other.

Spain, France and other countries that support the idea have said that joint guidelines on gas reserves could “mitigate rising prices”, while buying gas in a coordinated manner between states could increase their bargaining power.

The European Commission is expected to make details of its plan public and many questions need to be answered, including how countries will have access to gas reserves and the implications for companies that own those reserves.

Does the new plan help avoid rising prices?

EU states are responsible for their own energy policies, so individual states have different energy sources and gas storage buildings.

At this time of year, the EU has fewer gas supplies than usual. By the end of November, EU gas reserves were up to 68 per cent of capacity, meaning the European bloc would have to import 5 to 10 per cent more gas during the winter, it said. in the European Commission document, which was sent to EU countries before the November 16 summit, a document seen by Reuters.

Low stock levels are not the only cause of rising prices: Europe competes with Asia for liquefied natural gas supplies, which pushed up prices; Russian gas supplies have been lower than usual; carbon prices have been at record levels this year; wind power generation has declined and there have been major infrastructure disruptions.

States have made other proposals in response to rising energy prices.

Spain and France are among the countries that are demanding a change in regulation so that the price of electricity is separated from gas prices and that gas prices are linked to the average cost of production in each EU country.

These states say the current system, under which gas-fired power plants usually set the price of electricity, prevents consumers from taking advantage of cheaper prices in countries where energy is produced from renewable sources or in countries that use several sources for production. of energy.

What about Britain?

Britain can receive and send gas to Europe through pipelines. This state has no gas depot, as the British energy company, Centrica closed its depot in 2017, saying that the maintenance of this depot was very costly.

This meant that Britain – where about 80 per cent of homes are heated by gas – had storage capacity equal to about four to five days of gas demand during the winter season, up from 15 days before.

If the EU creates a strategic reserve, it is unlikely that Britain will get involved after the country left the European Union.

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