Jakarta, CNBC Indonesia – European governments are scrambling for solutions to protect their citizens from soaring energy bills as gas and electricity costs hit record highs across the continent ahead of winter.
The European gas benchmark price has skyrocketed by more than 500% this year due to limited gas supply in contrast to the growing demand for energy as the economy recovers from the Covid-19 pandemic. Moreover, Europe’s gas consumption accounts for a quarter of the total energy mix.
Citing Reuters, Friday (08/10/2021), one of the proposals, which is debated by Spain, is that the 27 member states of the European Union create strategic gas reserves (strategic gas reserve) to increase their gas supply.
The European Commission, which compiles EU policy, is analyzing the idea, which has the support of at least four other countries, although some EU countries are wary of implementing major market reforms to tackle what they say could be a near-term price spike.
Here’s what you need to know about the issue of the European Union’s strategic gas reserves, as quoted by Reuters:
Why is a Gas Reserve Tank Important?
The EU has the capacity to store more than 117 billion cubic meters (bcm) of natural gas, or roughly one-fifth of its annual consumption, according to Gas Infrastructure Europe.
Gas storage areas are usually salt “caves” or gas fields that have declined in production. Storage is needed to balance daily and seasonal demand fluctuations. This can secure gas supply in the event of a breakdown, major outage to infrastructure or extremely high demand in winter.
Storage capacity in the EU is uneven with large facilities in France, Germany, Italy and the Netherlands, but the interconnection with pipelines means member states can use gas stored in neighboring countries.
During the summer months, when gas prices tend to be lower, gas is usually injected into storage tanks for use in winter, when demand rises and prices rise.
This year the conditions were extraordinary as late summer storage levels were much lower for a variety of reasons, including exorbitant prices which meant gas was better sold than stored.
What are Strategic Gas Reserves?
Spain suggested that EU countries create a centralized European platform where countries can jointly buy gas, and use it to create “strategic gas reserves”.
Simply put, countries will share their gas storage with each other.
General guidelines on gas storage can “reduce and smooth out price increases”, while coordination of gas-buying countries will increase their bargaining power, Spain said in a joint statement with France, Greece, Romania and the Czech Republic, Tuesday (05/10/2021). ).
The proposals are not very detailed and any overhaul of EU rules would need to be negotiated by EU countries and the European Parliament, a process that could take years – although urgent steps could be put in place more quickly.
The European Commission will propose reforms to EU gas market rules in December when it can address the issue.
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