Page 6 - FSUOGM Week 11 2022

FSUOGM COMMENTARY FSUOGM

Brussels calls for EU gas

storage facilities to be

90% full by October 1

The plan is costly and ambitious, given the market's present state and EU

efforts to try and phase out Russian gas imports

EUROPE THE European Commission has called for EU there are looming concerns that Russia may cut
gas storage facilities to be filled to 90% capac- off supplies if its confrontation with the West
WHAT: ity by October 1, in order to protect the bloc’s escalates, and in any case, the EU is striving to
The EU wants its storage energy security next winter as it prepares to wean limit Russian purchases as much as possible
facilities 90% full by itself off Russian gas. But experts and industry going forward.
October 1. representatives are sceptical about whether such EU efforts to stock an unprecedented amount
an ambitious target can be met, at least at a rea- of gas in storage while also targeting a significant
WHY: sonable cost. cut in Russian gas supplies are likely to ensure
Brussels wants to avoid The EU entered the 2021-22 winter with unu- that European gas prices, which briefly spiked at
the scarcity seen in the sually low amounts of gas in storage, and coupled an all-time high of $4,000 per 1,000 cubic metres
previous winter. with a sharp rebound in demand and global sup- earlier this month, remain elevated for the rest of
ply constraints, this led to record-high prices for the year. Warmer temperatures, strong Russian
WHAT NEXT: much of the season. The EC is seeking to avoid gas flow and progress in negotiations between
At current prices, the cost similar problems this coming winter, especially Russia and Ukraine have caused prices to ease
could be up to $110bn. in the wake of Russia’s invasion of Ukraine. Brus- back over the last week. But consumers will nev-
sels is wary of a potential disruption in Russian ertheless struggle to cope with high prices dur-
gas supply if the conflict escalates, and it has ing the warmer months of the year, when they
unveiled its own ambitious plan to curb Russian normally drop significantly as heating needs
imports by as much as two thirds in the next year. decrease.
“Russia’s invasion of Ukraine has aggravated While it is difficult to calculate how much
the security of supply situation and driven the storage push would cost, UK-based Aurora
energy prices to unprecedented levels,” Euro- Energy Research estimated on March 3 that
pean Energy Commissioner Kadri Simson said buying the necessary gas would have a price
in a statement. “For the remaining weeks of this tag of €60-100bn ($66-110bn) at prevailing gas
winter, Europe has sufficient amounts of gas, but prices.
we need to replenish our reserves urgently for High prices are already resulting in demand
next year.” destruction. Energy generation firms have
The EU’s gas storage facilities are currently already cut gas use in favour of burning coal
around a quarter full, according to data pub- to produce power, which is now more compet-
lished by Gas Infrastructure Europe. The call to itive even though the extra emissions under-
raise this to 90% by October is among a series mine EU climate efforts. Other industries that
of proposals that the EC has made to help the rely heavily on gas either as an energy source
EU wean itself off Russian gas while also tack- or as a feedstock have begun shutting down
ling soaring energy prices. It is also pushing for their plants, as it is no longer profitable to keep
a ramp-up in LNG imports and supplies from them open. One case is Norwegian fertiliser
alternative countries. Yara, which said on March 9 it would suspend
For the time being, however, Russian gas operations at two of its facilities in France and
flows to Europe have picked up in the last few Italy, reducing its European ammonia and urea
months, as prices under Gazprom’s long-term output by 45%.
contracts are currently more competitive than Fertiliser is vital for agriculture, and so in this
spot market rates. Even via Ukraine, flow rates way the gas crisis is feeding into an escalating
have averaged around 110 mcm daily in recent global food crisis, which has also been brought
days, which is more or less equates to the 40 bcm on by past coronavirus (COVID-19) disrup-
that Russia pays Ukraine to transit every year, tions and the war in Ukraine, which is a major
regardless of how much it actually delivers. But exporter of grains and vegetable oils. ™

P6 www. NEWSBASE .com Week 11 16•March•2022