INTERVIEW: EFET calls for phase-out of emergency EU gas market measures

The emergency EU gas market measures implemented in 2022 at the height of the energy crisis should now be phased out given improved market conditions, a senior official at the European Federation of Energy Traders said.

A number of high-profile emergency measures were put in place last year to tackle the gas crisis, including the market correction mechanism, storage obligations, demand reduction targets, and a joint gas purchasing scheme.

In an interview June 23, EFET's gas committee chair Doug Wood said that while gas markets remained tight, there was limited justification for keeping the emergency measures in place.

"We recognize the intent of the political action," Wood said. "But if we are back to business as usual -- despite the market being a bit tighter -- then there does not seem to be an argument to retain these emergency measures."

EFET has long argued against market intervention, saying that measures could have adverse effects that damage markets.

However, Wood said policymakers could opt to retain the emergency measures. "Some have the viewpoint that unless they are actively doing harm and can be proven to do harm then why wouldn't you continue with them," he said.

But EFET has remained skeptical. The joint purchasing platform, for example, could trigger competition issues.

"We have concerns if it cements a dominant position in certain markets if the national champion becomes the central buyer," Wood said.

Price cap

EFET also continues to oppose the market correction mechanism, which introduced a TTF price cap of Eur180/MWh ($196/MWh).

"We continue to view the market correction mechanism as unnecessary. The circumstances that may lead to it being triggered are not those that the correction mechanism would actually improve," Wood said.

"It is potentially dangerous and certainly a distraction."

EFET also remained skeptical of the LNG price index published by regulatory body ACER. "So that is something we think could be phased out sooner rather than later," Wood said.

On demand reduction, Wood said markets were already designed to trigger a response. "If you have a gas shortage, once you have exhausted all of the potential new gas supply options, at the end of the day you can only manage the shortage through cutting demand."

"There is a series of steps for that -- high prices initially will encourage people to cut demand on their own account or invest in energy efficiency," he said.

Beyond that, Wood said, there could be a political role to coordinate demand reductions in an emergency to ensure supply security. "But these are good practice anyway."

On the new storage rules, Wood said the need to fill sites last summer had led to a shift in buying behavior with non-commercial parties -- such as German market manager THE -- entering the market and buying gas at high cost.

"That has been particularly unhelpful and demonstrated how expensive these measures can be," Wood said.

"If we are going to maintain storage filling obligations there has to be a lot more discretion for network users to be able to meet those obligations."

Market changes

Wood said the European gas market had been through unprecedented change over the past three years and politicians had to be seen to be reacting.

"The market was doing a double adjustment from pre- to post-pandemic to adjusting to the war and I think there is kind of an expectation that prices adjust immediately," he said.

"But it takes a while from your investment for new production to come on or for demand management measures to take effect."

There has also been renewed volatility in recent weeks after a period of relatively gradual price decline following the record highs last August.

The market was spooked by an extended outage at the Nyhamna gas processing plant in Norway this month, with Norwegian maintenance remaining a concern.

Wood said that in a tight market, price reactions can be disproportionately large.

"People recognize the markets are still reasonably tight. When there are small shocks to the system, they will have much larger impact than when markets are long. It is not unexpected," he said.

Platts, part of S&P Global Commodity Insights, assessed the TTF month-ahead price at a two-year low Eur23.25/MWh on June 1, but the price almost doubled over two weeks, rising to a recent peak of Eur41.03/MWh on June 15.

Despite the price moves higher, some market watchers see a risk to the downside later this summer if European gas storage sites fill quickly.

Prices slumped in the summer of 2020 during the pandemic after storage sites filled well before winter.

"Markets responded well to these circumstances before and I can see no immediate reason why that would not be the case again," Wood said.

"There will be plenty of signaling there for people to be able to react to that," he said.

Decarbonization package

EFET has also recently published a position paper on the EU's new gas decarbonization package, which is currently in trilogue.

One area where EFET has concerns is around tariffs for renewable and low-carbon gases.

The European Parliament is promoting zero tariffs at interconnection points to try to create an integrated European system.

But, Wood said, that would prevent efficient utilization of the network and would remove incentives for investment in additional capacity "in the right places".

He also said it was important to have a more coordinated framework to avoid the development of "isolated" national markets becoming embedded in the system.

"It would become more difficult to achieve cross-border trading and an internal energy market for renewable and low carbon gas," Wood said.

"We recognize there will be national initiatives, but you can do that within a framework that allows convergence later."