Europe Needs a New Gas Storage Strategy

Europe has subcontracted its energy security for President Vladimir Putin. Now it is paying the price.

European regulators of energy should learn from the winter’s high prices for gas and electricity. They need to develop new rules that govern gas storage in winter.

Gazprom PJSC, Europe’s largest gas supplier, thought it was a great idea to purchase storage facilities near its customers. Russia has been a reliable gas supplier to Europe since the 1960s. Its supply of vital winter heating and power generation fuel was largely unaffected by the Cold War, the collapse of the Soviet Union, and subsequent Russian reaffirmation of its superpower status.

The Russian gas flows to Europe are not being curtailed by its northern migration to the Yamal Peninsula as its gas production centre, the emergence of China as a major destination for export pipelines and the Kremlin’s 30-year strategy to cut transit countries like Belarus, Poland and Ukraine from its oil and gas export routes.

Gazprom sold gas storage sites to European consumers. This allowed them to enjoy the convenience of having a large stock of fuel at their fingertips without the need for distribution companies or utilities to purchase it until they were actually in use.

Gazprom was very happy to pay the financial costs of purchasing the gas and storing it. Many times, these backwardated markets are where future prices are lower than current ones. Yet, the same utilities are wailing about the shortage of gas.

As long as the storage units are stocked before cold weather arrives, the system will work fine. They didn’t this winter. The reason is obvious: Gazprom, which controls almost one-quarter of Germany’s gas storage capacity via astora GmbH failed to fill its storage vaults.

Gazprom did not fill its German gas storage units in time for winter and has not done anything to remedy that situation as the season progresses.

The fact that storage caves were empty is more important to consumers than the reason for it. European utilities were not in a hurry to rent storage space, and Gazprom couldn’t or wouldn’t fill the storage it already had. Whatever the reason, consumers are still afraid of scarcity and high prices.

The European natural gas prices rose this winter and reached new heights in December.

Russia suddenly became an unreliable supplier. It is puzzling that Europe has never required storage facilities to be kept at a minimum level for either domestic or foreign entities.

Europe must take concrete steps to prevent the same low inventories at the beginning of the winter from happening again if it is to allow gas storage facilities that are important to it to be left in the control of a trading partner.

It is clear that Europe has sufficient gas storage capacity. Gas storage facilities in Europe should be owned by those who are legally bound to fill them before winter.

Europe will be held hostage to its largest supplier if it fails to address this issue. winter temperature won’t always be there.

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