Strategic Reserve: EU urges early start to filling gas storage

The relative calm in the European energy market this spring is deceptive: even though the heating season is coming to an end, Brussels is looking with growing concern at the coming winter. The EU Commission therefore officially called on the member states on Monday to begin the injection phase for natural gas as early as possible.

The background is the escalation in the Middle East. After the US and Israel attacked targets in Iran three weeks ago, oil prices have shot up by over 50 percent. Gas prices in the EU have already risen by more than 30 percent. As Iran is blocking the strategically important access to the Persian Gulf, a quarter of the world's oil supplies and a fifth of liquefied gas-based deliveries (LNG) are effectively cut off from the world market.

In a letter to the EU energy ministers, Energy Commissioner Dan Jørgensen emphasizes that the community is better protected today through high imports from the USA than at the beginning of the Ukraine war in 2022. However, the global interconnectedness of the markets remains a permanent risk.

An early start to filling is therefore intended to relieve pressure on prices and prevent the hectic “end-of-summer rush” for remaining capacities. To give market participants security, the Danish politician even suggests lowering the official filling target to 80 percent under certain conditions if the market situation is tense. The barely achieved mark is currently 90 percent.

More flexible storage targets

The Commission is thus reacting to a new reality in which energy has become security policy. Katherina Reiche (CDU), Federal Minister for Economic Affairs and Energy, underlined the significance of this development on Monday: “Energy is no longer just an economic issue – it is a central security policy dimension of our time.”

The current situation shows how vulnerable global energy supply chains are and how quickly geopolitical conflicts can turn into real economic dangers. Dependence on geographically concentrated energy flows is “a structural risk.” The answer must be consistent diversification and long-term supply contracts.

To support this process regulatorily, the EU Commission plans to extend the Gas Storage Regulation until the end of 2027. The new regulations stipulate that the target of a high filling level must be reached annually within a flexible window between October 1 and December 1.

The Commission is thus reacting to the realization that rigid deadlines can be counterproductive in a nervous market environment. Member states now officially have the option, under “difficult conditions” and after consultation with the Commission, to deviate from the original target by up to 20 percentage points. This flexibility is urgently needed, it is said, as Europe is in direct competition with the solvent markets in Asia when purchasing LNG.

Market logic vs. supply security

Looking at the national level in Germany reveals structural cracks. The current storage filling levels have already been causing political friction for weeks. The Federal Network Agency reassures that the national targets are being met overall. However, dangerous trends are emerging in regions like Bavaria. Despite the importance of gas for electricity generation in the wind-poor south, underground storage facilities like Wolfersberg or Breitbrunn are apparently losing their economic basis. The operators are planning to shut them down, as the current market environment does not offer sufficient incentives for costly storage.

This highlights a fundamental problem: the storage logic only works if storage is economically attractive or state-guaranteed. Even in the Netherlands – once the gas guarantor of the continent – storage levels have fallen below 20 percent. While seasonal demand has slightly decreased on average due to efficiency measures.

However, extreme weather events like those in January show how quickly demand can shoot above historical averages. A Europe-wide cold snap combined with blocked trade routes in the Middle East would push the system to its limits. The coming months will show whether the coordinated European strategy is sufficient to secure economic stability against the upheavals of geopolitics.

(vbr)