EU Nations Seek Flexibility on Gas Storage as Stockpiles Deplete
Nations within the European Union are urging the European Commission to ease refilling requirements for gas storage ahead of winter. Declining stockpiles and rising prices have sparked concerns about meeting current targets.
At a meeting of the Gas Coordination Group, a group of countries will advocate for a relaxation of targets aimed at ensuring 90% storage capacity by November 1. This proposal builds on previous demands by member states to soften refilling goals in future years, as reported by Bloomberg last week.
Benchmark gas futures witnessed a 6.3% plunge upon news of the potential relaxation, extending an earlier decline. Cold weather, low wind generation, and the absence of Russian supply have led to rapid depletion of gas inventories this year. Storage sites currently stand at an average of 48% capacity, the lowest seasonal level since 2022.
Summer demand for refilling has pushed prices to a two-year high this week. Stubbornly high summer prices, despite recent declines, make fuel storage unprofitable. Germany's market manager, Trading Hub Europe GmbH, is considering subsidies to encourage stockpiling.
"Current EU storage targets, mandating specific levels for specific dates early in the year, tend to inflate prices," said Jonathan Stern, a researcher at the Oxford Institute for Energy Studies. He emphasized the need for flexibility to allow stockpiling when markets are most favorable.
The European Commission plans to propose a two-year extension of existing rules and interim filling targets early next month. Member states aim to leverage this opportunity to influence the Commission's decision and ease the pressure on gas prices created by the targets. At least six countries support the relaxation for this year, but it remains uncertain if there is sufficient backing to implement the changes by June to ensure a timely impact before winter.
Countries generally support the principle of refill targets but may consider adjustments for next year's season.
If the Commission's proposal falls short of expectations, the group of member states may attempt to amend the regulation during EU Council discussions on the final measure. National governments must approve by qualified majority.
Concerns exist that overly strict targets contribute to surging gas prices, as traders anticipate government intervention to fill storage in the coming months. Prices hit a two-year peak this week.
The Gas Coordination Group serves to monitor filling trajectories and prevent companies in different member states from outbidding each other, leading to spiraling prices.
The recent surge in gas prices has intensified efforts to revise the existing gas storage regulation amid concerns of market speculation. Ensuring affordable energy for Europe's heavy industry remains a priority for Ursula von der Leyen, President of the European Commission.
The Commission will present its affordable energy action plan later this month, exploring measures to curb prices, potentially including price caps that have faced opposition from energy producers and traders.
Dutch front-month futures, the European gas benchmark, declined by 3.6% to settle at €55.66 per megawatt-hour. The spread between gas contracts for this summer and the following winter fell by over 30%, reaching a three-week low.
The market sentiment had already shifted towards bearishness on Wednesday as the US stepped up efforts to broker peace between Russia and Ukraine, raising hopes of恢復Some Russian supply. Minutes before European gas market closure, President Donald Trump announced a telephone conversation with his Russian counterpart, Vladimir Putin, where they agreed to initiate talks on ending the Ukrainian conflict.