Europe would struggle to refill gas storage without Russian supplies

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LONDON/OSLO — Europe’s plans to build up stocks and secure gas supplies for next winter could be upended if exports from Russia are halted amid a stalemate over payment terms, risking a curb industrial use, analysts have warned.

Russia typically supplies Europe with around 40% of its gas, but the possibility of a supply disruption since Moscow’s invasion of Ukraine has grown over the past week, with G7 nations rejecting a request for payment in rubles.

The European Commission says the gas stored is typically around a quarter of that used in Europe during the winter months, when it is an important heating fuel.

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In a bid to shore up supplies for next winter, he has proposed legislation requiring gas storage operators to fill sites to at least 80% capacity by November 1.

But with stores currently only about a quarter full and below the five-year average for the time of year of just under 34%, the task seems incredibly difficult to accomplish without Russian supplies.

“The 80% target by November 1 is achievable as long as at least some Russian gas continues to flow,” said Jack Sharples, a researcher at the Oxford Institute of Energy Studies. “But I think in terms of doing it without Russian gas, it’s just not feasible.”

Germany, Europe’s biggest gas consumer that depends on Russia for around half of its needs, has set itself a target of 90% by November. Its gas stocks are currently 26% full.

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But in an unprecedented move, the country also triggered a contingency plan on Wednesday that could see the government ration electricity if Russia’s gas supply is disrupted or disrupted.

The European Commission said immediate supply emergencies would take priority over filling storage, with the targets not applying if it declares an EU-wide or regional gas supply emergency – this it can do if at least two countries have already published their own declarations.

“If Russian flows stop tomorrow and don’t start again until next winter or for the whole year or more, storage won’t be able to fill to the 80% level,” said Kateryna Filippenko, principal analyst, Global Gas Supply at Wood. Mackenzie.

“Most likely in the EU, storage will end up somewhere a little over half, maybe around 54%.”

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This, said Filippenko, could pose problems for the industry, as Europe would seek to protect vulnerable consumers by reducing the use of industrial gas, potentially by up to a fifth.

The storage plan is further complicated by Russian state gas company Gazprom’s control over several storage sites in northwestern Europe, where stocks have been at their lowest for at least 5 years.

In Germany, a third of gas storage belongs to Gazprom.

“We believe it is unlikely that Gazprom will try to completely fill these sites given the gradual decline in contract demand for Russian supply and the little appetite for Gazprom to sell in the spot market,” the statement said. Leon Izbicki, Partner, European Natural Gas at Energy Aspects.

If there is a risk of shortages, German law allows Trading Hub Europe (THE), a gas market hub overseen by the country’s energy regulator, to use storage facilities that are empty or below fill levels stipulated to store own purchases.

“Market managers like THE are likely to take that space on a ‘use it or lose it’ principle…and fill that capacity,” Izbicki said.

The European Commission has also proposed that from 2023 all gas storage sites will be 90% full by November 1.

The EU aims to cut its dependence on Russian gas by two-thirds this year and end all Russian fossil fuel imports by 2027.

(Reporting by Susanna Twidale and Nora Buli; Editing by Kirsten Donovan)



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