ACER, the body representing EU energy regulators, said Oct. 13 it was unclear whether a proposal for a “centralized” EU approach to strategic gas purchasing would have any material effect on pricing.
In a report on the current high European gas and power prices, ACER also warned that if the EU did not see additional LNG and pipeline gas imports, then storage levels could be “short” in the event of a very cold winter.
The European Commission is currently considering a number of proposals from member states on how to best handle the gas price crisis, including the potential for a joint initiative to procure emergency gas supplies and the creation of a strategic gas reserve.
“It is not immediately clear that pooling of such purchasing power would have much impact on the price of gas supplies,” ACER said.
“For starters, current circumstances constitute a ‘seller’s market’. As such, any collective buying proposition from European companies would need to be attractive vis-a-vis, say, major demand markets in Asia that are currently driving prices upwards.”
“Similarly, the dominant gas pipeline suppliers to Europe do not seem to be reacting heavily to the current high-price environment by significantly enhancing their supply. Hence, it is an open question whether pooling purchasing power would have a material effect,” it said.
European gas prices have soared in recent months, building on a strong price rally since the start of 2021. The day-ahead TTF price hit a new high of Eur116.10/MWh Oct. 5, according to S&P Global Platts price assessments.
Storage obligations
ACER said the high gas prices in Europe have also turned political attention toward gas storage, where member states have different approaches to stocking policy and minimum storage levels.
It said that while storage obligations tend to result in higher stock levels, they can also reduce the efficiency of supply and restrict hub trading activity, which could lead to higher final prices.
“Therefore, proposals to expand gas storage obligations across the EU, notwithstanding certain supply security benefits, deserve appropriate analysis,” ACER said.
Given the current low levels of EU stocks — which had been built to just 78% of capacity by Oct. 11 according to Gas Infrastructure Europe — winter temperatures will be key to market dynamics, ACER said.
“As current gas supply is unusually tight, attention naturally turns to a key variable for near-term demand in the form of the upcoming winter season in Europe,” it said.
“A colder-than-average 2021/2022 winter season could push gas demand further up, whilst at the same time limiting some renewable electricity generation, thereby resulting in potentially higher prices than anticipated today.”
ACER said that demand from industry, meanwhile, would be shaped by a number of factors, including the profitability of continued production in light of higher energy input prices.
“So far, however, the post-COVID-19 economic growth seems rather robust,” it said.
Import need
ACER said that spot LNG deliveries into Europe this winter would be influenced by global demand and supply dynamics.
This, it said, coupled with low gas storage stocks, would imply upward pressure on prices.
“Put briefly, if LNG and pipeline imports do not increase compared to current levels, stocks may be tight to face a similar winter to 2020/21, and short to face the ‘worst scenario’ in terms of winter temperatures,” ACER said.
The agency also said it was monitoring the market for any signs of manipulation.
“Currently, based on the information and data available to ACER, there is no obvious indication nor evidence of systematic manipulative behavior or insider trading under REMIT causing the high energy prices,” it said.
“Furthermore, given the global fundamental drivers of current high prices in Europe as outlined above, it is unlikely that any specific and repetitive market trading behavior would have a significant impact on such high prices.
“ACER’s market surveillance efforts alongside those of national regulators under REMIT are ongoing,” it said.
ACER also said there had been discussions on why the current high European prices had not triggered an increase in deliveries from Russia’s Gazprom.
However, it said, according to publicly available information, Gazprom had delivered on its contractual gas commitments, while also pointing out that there were “significant” transport capacities currently not booked that would allow for increased Gazprom supplies to Europe.
Source: Platts