Gas crisis: Europe could tap into emergency supplies as stocks run low, say experts

Europe may have to tap into emergency gas supplies normally considered off limits because the continent is entering winter with historically low stocks, experts have warned.

Near-record high energy prices have put 25 retail suppliers out of business and meant soaring bills for households. Further spikes in wholesale prices are expected in the coming weeks as temperatures drop.

Sustained cold weather like the Beast from the East in 2018 could see Europe’s gas storage completely emptied by February, analysts say, pushing prices up further and increasing pressure on companies and governments to draw on emergency stocks.

“If we have a cold winter we could run very, very low on European storage,” Graham Freedman, principal analyst at Wood Mackenzie, told The Independent. “Especially if Asia has a cold winter as well because that would take more liquefied natural gas out of the market.

“We could end up in an extremely tight position, so much so that Europe could use cushion gas.”

So-called cushion gas is held at storage sites across the continent but is never normally used because extracting it poses safety risks and could permanently damage the underground reservoirs where gas is kept. A certain level of gas is needed to maintain pressure in the wells at all times.

“These are exceptional circumstances,” said Mr Freedman. “There is an additional reserve sitting in the ground that isn’t normally considered. It has only been used at very small scale in the past.

“The difference here is that we are potentially looking at quite a large scale. If everything goes wrong, we could be using it by February.”

The proposal comes as Europe enters the coldest part of the year with around 15 per cent less gas in store than it would normally have.

Around 83 billion cubic metres (bcm) are in storage, compared to an average of 97bcm at this point in the past five years. Using 10 per cent of the continent’s cushion gas would free up another 15bcm, potentially averting a situation where storage runs empty, according to Wood Mackenzie’s calculations.

“It would help to calm markets and give greater confidence that supplies will be sufficient to get through the winter,” Mr Freedman said.

Wood Mackenzie’s team of analysts suggested that if storage runs close to zero, governments may have to relax rules to allow companies greater freedom to use cushion gas.

A source at one major UK storage company did not rule it out. “There are protections in place because of the potential safety impact on site. Cushion gas is fundamental to integrity of the salt caverns where gas is stored,” the person said.

“We will weigh up those factors but it would be a significant decision for us to take.”

Such a move would be controversial and one storage company, Germany’s Uniper, said it would not tap into the supplies due to safety concerns. Other European gas storage companies declined to comment or did not respond to questions.

Guy Smith, energy trader at Vattenfall expressed scepticism about using cushion gas and said only a relatively small amount could be accessed.

“The storage won’t run out. There will always be enough gas but prices will have to optimise,” he said. “With low storage levels you can expect prices to jump up and down a lot over the winter.

“This is dependent on the weather, ultimately. Storage is effectively a buffer to that volatility. The less storage you have the more exposed you are.”

The UK government has been heavily criticised for allowing the UK’s largest storage site, Rough, to close down in 2017. The North Sea facility held three-quarters of Britain’s stored gas.

Nick Wye, chairman of the Underground Energy Storage Operators, a trade association, questioned whether additional gas storage would have alleviated the current crisis.

While the UK has significantly less storage capacity than many other European countries, it also has more gas supply than some, with around half of demand met by domestic supply, Mr Wye said.

“All of Europe has seen a spike in prices, not just the UK. Even if we’d had more storage going into this I don’t think it would have made much difference.”

“The biggest issue is the lack of supply combined with burgeoning demand, particularly in Asia. If you have a long cold period it’s more likely that stocks are going to be reduced. It is not going to be an easy winter.”

He added there were too many variables, including political decisions by Vladimir Putin’s Russia, for anyone to confidently predict what will happen in the gas market.

The Russian president has been accused of deliberately holding back supplies to ramp up pressure on European governments to approve the opening of the new Nord Stream 2 pipeline running through the Baltic Sea.

The project has been completed but is yet to deliver any gas because European countries including Germany have held off from certifying it, a move that has angered the Kremlin.

Nord Stream 2 will double Moscow’s gas exports to Germany, but it will also circumvent Ukraine, which would lose out on important revenues it generates from transit fees on gas that runs through existing routes across its territory.

Last week, Germany suspended certification of the pipeline, causing another spike in gas prices. Critics argue that the new pipeline will increase Europe’s dependence on Russia for energy.

Douglas Mateo

Douglas holds a position as a content writer at Neptune Pine. His academic qualifications in journalism and home science have offered her a wide base from which to line various topics. He has a proficiency in scripting articles related to the Health industry, including new findings, disease-related, or epidemic-related news. Apart from this, Douglas writes an independent blog and assists people in living healthy life.

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