The European Union plans to relax its intermediate gas storage refilling targets to mitigate market distortions and encourage more efficient stockpiling for winter, the European Commission announced on Wednesday. The move comes as concerns grow that the bloc may struggle to meet its mandated storage levels this year.
The Commission emphasized the need for greater flexibility in storage refilling to avoid artificial price hikes and market stress. “More flexible filling trajectories, with the support of the Commission, can help reduce system stress and avoid market distortions, supporting refilling at better purchasing conditions and ensuring security of supply,” it stated, without providing further details.
Impact of current storage rules
Gas storage serves as a crucial buffer during winter when demand peaks, stabilizing prices and ensuring supply security. In response to Russia’s 2022 full-scale invasion of Ukraine, the EU introduced mandatory storage targets: 80% capacity per country in 2022 and 90% annually from 2023 onwards, to be achieved by November 1.
However, traders warn that these rules have disrupted the natural gas market, driving up summer prices and discouraging gas purchases for storage. The regulation effectively forced countries to buy gas simultaneously, exacerbating market imbalances. “In effect, the regulation enforced to safeguard the market next winter has actually distorted the market much earlier,” a trader commented.
The situation worsened this winter due to colder temperatures, low wind power generation, and reduced Russian gas pipeline flows through Ukraine. As a result, Europe has drawn more from its storage than in previous years, leading to lower-than-expected reserves.
Historically, summer gas prices were lower due to reduced demand, creating a natural incentive for traders to stock up for winter. However, the EU’s rigid storage requirements have flipped this trend, with summer gas prices now exceeding winter prices. This has led to uncertainty in the market, as traders fear they may not profit from storing gas.
Germany and other EU countries face storage challenges
Germany, which requires 90% storage levels by November 1, is experiencing high market uncertainty, with over half its storage capacity unreserved beyond April 25. Similar issues are affecting Austria and the Czech Republic, where storage targets are based on national consumption levels.
In 2022, amid an energy crisis, Germany’s government intervened, spending nearly €9 billion to purchase 50 TWh of gas at €174/MWh, significantly above market prices. The cost has yet to be fully recovered.
German energy industry leaders are now advocating for a reduction in storage mandates. Kerstin Andreae, chair of the German energy lobby BDEW, argued that while the targets were necessary following Russia’s invasion, the situation has changed. “The legal requirements have a major impact on market behavior and are a false incentive for seasonal coverage,” she said, calling for a reduction of Germany’s storage target from 90% to 80% to help stabilize the market.
Uncertainty over 2024 storage targets
As of Monday, EU gas storage was at 40.3% capacity, more than 20 percentage points below the same time last year. Analysts, including Rabobank energy strategist Florence Schmit, warn that the EU may fall short of its 90% storage target if current market conditions persist.
The European Commission’s decision to loosen refilling targets could help ease market pressures, ensuring more cost-effective storage replenishment without forcing countries to buy at artificially high prices. However, the exact details of the revised policy remain unclear.
