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Gas demand reduction key for upcoming winter, but situation 'manageable': EC

Energia | Petróleo | Produtos Refinados | Combustível de aviação

Combustível de Aviação S&P Global Commodity Insights

Gas demand reduction key for upcoming winter, but situation 'manageable': EC

Destaques

EC on standby to issue 'union alert' on gas demand: Zsigri

Winter could become difficult, no room for complacency

No final decision yet on scope of gas price cap proposals

EU member states need to retain focus on reducing gas consumption in order to manage the upcoming winter, which still has the potential to become more difficult, a senior European Commission official said Sept. 21.

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Speaking during a Eurogas webinar, EC head of unit at the energy directorate Monika Zsigri warned against complacency despite the series of measures the EC has introduced to ensure winter supply security.

"As the heating season approaches, we still need to look at demand reduction," Zsigri said. "If extra supplies are difficult to obtain due to the global situation on gas supply, we have to look at demand," she said.

"The situation for this winter is manageable, but it can become more difficult so we cannot be complacent. More remains to be done to increase our resilience further," she said.

Significant cuts in Russian gas supplies have left Europe short on gas, pushing prices to record highs in recent months.

Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh Aug. 26. It was last assessed at Eur197.50/MWh Sept. 20.

EU member states agreed in July to a voluntary 15% gas consumption reduction target between August 2022 and March 2023, but the EC stands ready to impose a mandatory demand cut if the market situation worsens.

"First member states are called to reduce their demand voluntarily by 15%. But if the reduction is not enough, then a 'union alert' would trigger a mandatory obligation for member states to meet this 15% reduction," Zsigri said.

She said that for the EC to declare the alert, it would first have to assess the market landscape, taking into account the gas storage situation, alternative gas flows, and the weather.

Zsigri said that to date, most member states had already reported that they had reached the 15% reduction target.

"In any case, the situation needs to be monitored continuously and it will depend on how the supply situation changes," she said.

Gas consumption cuts have already been made in a number of areas, including in power generation and industry, Zsigri said.

"What we have seen since the start of the crisis is fuel switching in power plants and industrial users deciding to import a final product rather than produce it within," she said.

"In some countries, we have heard that some industrial installations have closed down, and in some there is postponement of production."

Price cap

The EC is also considering proposing a price cap on gas to ease the burden on consumers, but Zsigri said there was still no decision on what such a proposal could look like.

"It will have to be seen to what extent we will propose anything in that area," she said.

Zsigri said an assessment was currently being carried out to gauge what impact such a measure would have on the internal energy market.

"What we have to be very conscious about is to keep the value and strength of the internal energy market. Interference in its functioning needs to be minimal and temporary. There are no final decisions on what exactly will be proposed."

Zsigri also pointed to the EC's initiative to set up a joint gas buying platform as part of its measures to safeguard gas supply.

She said that mechanisms for joint buying had been discussed with member states and with companies to see if they were implementable.

"Any negotiations or the activities between companies remain with the companies. We in ourselves will not be party to negotiations," she said.

The EC has also been very active in increasing diplomatic efforts with key suppliers -- such as Norway, Azerbaijan, and Egypt -- to lock in new gas supply.

"When it comes to international outreach with major supplier countries, we smooth the ground on the governmental level to see whether there are extra volumes that could be sent to the EU. But again, the negotiations are left for the companies," she said.

There is also concern, though, that the EU's target of cutting gas demand could be a block to suppliers agreeing new long-term supply deals.

"Suppliers are looking for certainty of demand, and with the long-term plans of decarbonizing, this is usually something they enquire about," Zsigri said.

"This is why we are looking at demand aggregation which could put together different timeframes and different volumes that could be put into a bigger package that could provide more certainty of demand."

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