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EU energy ministers adopt 15% gas savings regulation with exemptions

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EU energy ministers adopt 15% gas savings regulation with exemptions


Political agreement to be specified in coming days

Geographical, some sector derogation possible

TTF prices rise with focus on demand destruction

  • Author
  • Andreas Franke
  • Editor
  • Henry Edwardes-Evans
  • Commodity
  • Coal Electric Power Natural Gas
  • Topic
  • Europe Energy Price Crisis War in Ukraine

EU energy ministers have agreed to voluntary gas demand reductions of 15% this winter but with potential exemptions for member states if the cuts are made obligatory under emergency conditions, the Czech presidency said July 26.

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Voluntary savings of 15% from Aug. 1 until March 31, 2023 could amount to 45 billion cu m of gas, the European Commission has said.

"Today's decision has clearly shown the member states will stand tall against any Russian attempt to divide the EU by using energy supplies as a weapon," Czech minister of industry and trade Jozef Síkela said.

The Council noted there would be "some exemptions and possibilities to request a derogation" from a mandatory reduction target in the event of an emergency, if member states had only limited interconnection to gas grids, or were heavily reliant on gas for power.

"Member states can also request a derogation if they have overshot their gas storage filling targets, if they are heavily dependent on gas as a feedstock for critical industries or if their gas consumption has increased by at least 8% in the past year compared to the average of the past five years," the Czech presidency said.

The regulation requires member states to update national emergency plans by end-September and report to the Commission every two months.

The EC would carry out a review of the regulation by August 2023.

Derogations were expected for Spain, Portugal, Ireland, Cyprus and Malta, with Hungary and Poland also pushing back on the proposals ahead of the meeting.

EC energy commissioner Kadri Simson underlined the need for solidarity while German energy minister Robert Habeck acknowledged compromises and exemptions were needed, for instance with regard to gas demand in food production or for less well connected member states.

Price-driven demand curbs

A 15% voluntary gas demand reduction target aligned relatively closely with a Platts Analytics' estimate of demand destruction due to high prices.

Gas demand in Northwest Europe would fall by 13% between August 2022 and March 2023 compared to the five-year average demand for the period, Platts Analytics modelling showed.

Based on its TTF price forecast of Eur125-140/MWh, demand would be reduced in the power sector through maximum coal and oil switching, while industrial demand is forecast to drop by 15%.

TTF front-month gas traded July 26 as high as Eur197.75/MWh, ICE exchange data showed.

Ministers were also briefed about a new proposal by Greece to decouple European electricity prices from gas.

Analysts at RBC noted the "particular case of Spain that has ample regasification capacity but low interconnection with France" having reversed traditional imports from France to become a net exporter.

In electricity, a gas-for-power price cap also boosted gas-for-power demand in Spain significantly to help offset the decline in French nuclear output, another reason for Spain to call for derogation measures.