Europe continues to prepare to guarantee the supply of natural gas next winter

Natural gas has become a high-level strategic resource in recent years that is causing an increase in geopolitical tensions in various regions of the world.

Since 2020, the natural gas market has experienced a series of important fluctuations caused by the drop in production due to the lack of demand caused by the covid-19 pandemic in 2020, the rebound effect produced in 2021 due to the partial recovery of activity and the war in Ukraine, together with the reopening of the Chinese market to the world after its harsh anti-covid policy in 2022.

China’s main objective is to put its locomotive into operation to reach pre-covid figures. And for that you will need huge amounts of energy resources, among which is natural gas, something that will undoubtedly influence the gas market in the coming months.

In this context, the European Union continues to do its homework to be able to go through the winter of 2023-2024 without supply problems, and at affordable prices for the pockets of citizens.

Measures taken in 2022

In the year 2022, especially as a result of the Russian invasion of Ukraine, natural gas prices skyrocketed and the supply of this resource was seriously endangered for several countries dependent on Russian gas such as Germany, Italy or Poland, mainly due to to the climate of commercial tension with Russia.

The European Union had to act urgently to, firstly, guarantee the supply of natural gas for the year 2022, especially in winter, and secondly, go to the gas market at contained prices.

To guarantee the supply of natural gas for member countries, the European Union, through Parliament and the Council, approved a regulation that obligated member countries to supply and maintain natural gas reserves before the winter of 2022-2023 at least. to 80%, while for the winters 2023-2024 and following, the percentage had to be at least 90%.

In addition, said regulation presented a mechanism that stipulated that if a member country needed natural gas, the rest of the countries would have to send part of their reserves thanks to the solidarity mechanism.

Variation in the level of gas storage (%) in the EU in recent years.
EU gas storage inventory

Likewise, the European Commission launched in May 2022 an ambitious plan called REpowerEU endowed with 100 billion euros. With this initiative, it intends to rapidly reduce the dependence of the EU countries on Russian fossil fuels and seeks to accelerate the path towards the ecological transition thanks to renewable energies and energy efficiency.

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Scheme of actions of the REpowerEU Plan.
European Comission

A joint gas purchasing platform

The European Commission has created the EU Energy Platform, a system that allows the joint purchase of natural gas by community companies, as well as the contracting parties of those countries that make up the so-called Energy Community (Albania, Bosnia and Herzegovina, Georgia, Kosovo, Moldova, Montenegro, Republic of North Macedonia, Serbia and Ukraine).

Its main objectives are to avoid any type of price volatility of this energy resource, to guarantee the supply for the operation of the main economic sectors, as well as to facilitate access to this resource for small companies and regions with certain limitations such as lack of access to the sea. , thereby increasing energy security in Europe.

To make it a reality, a mechanism known as AggregateEU ​​was designed in 2022, which has its origin in the solidarity regulation. It consists of matching the demand for natural gas by community companies and contracting parties of the countries of the Energy Community with the offer of the operators of this resource at an international level, to subsequently reach a series of private agreements at contained prices. .

The level of intervention of the European Commission in AggregateEU ​​will be minimal, since it would be limited to providing transparency of the agreements that are closed between providers and companies in terms of prices and transfer volumes to avoid possible speculation.

AggregateEU ​​has started to operate at the end of April 2023, and presents a bimonthly crossover of operations, so at least six crosses per year would be carried out.

Regarding the AggregateEU ​​phases, it will begin with free registration by companies and contracting parties that demand natural gas based on their forecasts, going through an aggregation of said demand with the most competitive offer at that time and ending with closing deals.

An important issue is that gas operators that come to AggregateEU ​​cannot offer gas coming either directly or indirectly from Russia.

In addition, according to the solidarity regulation, EU countries must contribute to AggregateEU ​​15% of the 90% commitment of their reserves for the winter 2023-2024 as if they were another operator.

The case of Spain

Spain is in a privileged situation within the natural gas sector at a European level. One of the sources of this resource comes from liquefied natural gas (LNG), mainly from the United States, Qatar and Nigeria, which currently represents 47% of the world gas market.

Spain, according to data from the Ministry of Ecological Transition and Demographic Challenge, has 37% of the LNG stored in all of Europe, being the main hub (organized market) in this region. Without forgetting that it is a leader in the European Union thanks to its six LNG storage and regasification plants, with a storage capacity of 540,000 m³ and a regasification capacity of 1,800,000 m³/h.

In addition, it should be noted that the Government of Spain is carrying out important structural reforms related to the energy transition, such as the Strategic Project for Recovery and Economic Transformation in Renewable Energies, Green Hydrogen and Storage (PERTE ERHA) derived from the Recovery Plan, Transformation and Resilience.

This project presents among its objectives the reduction of the use of fossil fuels such as natural gas, not only to reduce greenhouse gas emissions, but also to reduce the dependence of third countries on this type of resource.

Likewise, through Royal Decree-Law 6/2022, of March 29, by which urgent measures are adopted within the framework of the National Response Plan to the economic and social consequences of the war in Ukraine, the Government of Spain modified articles 2 and 17 of Royal Decree 1716/2004, of July 23, increasing the obligation to maintain minimum security stocks from 20 to 27.5 days of firm sales or consumption. Obligation that has been regulated in the recent Ministerial Order TED/72/2023, of January 26, which develops the necessary procedures for compliance with the obligation to maintain minimum security stocks of natural gas.

Having said that, Spain should not have major problems facing the winter of 2023-2024 thanks to its relevant position in the European gas market in terms of storage and regasification, as well as the application of energy diversification policies that it is carrying out. currently.

In addition, it must not be forgotten that winters in the Iberian Peninsula are generally not as harsh as those that can occur in regions of central and northern Europe, so the dependence on this resource is limited.

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