EU options to mitigate high energy prices

The European Commission set out ideas on 23 March for collective European action to address the root causes of the problem in the gas market and ensure security of supply at reasonable prices for next winter and beyond.

1. Why is the Commission proposing a minimum gas storage obligation?

Current EU rules on the security of gas supplies were conceived with exceptionally cold winters or small-scale disruptions of supply in mind. However, they do not sufficiently equip us with measures to deal with today’s security of supply risks and gas markets volatility. Gas storage has an important role to play in guaranteeing the EU’s security of supply, covering, in a normal winter, 25-30% of gas consumed across the EU.

In the winter season that is now coming to an end, we have witnessed unprecedented low levels of storage, resulting from high gas demand worldwide, which could not be met by supply. Gas storage sites owned by some third country operators have been particularly underfilled. Low gas storage levels in addition to the escalation of the armed conflict in Ukraine since February 2022 have contributed to increasing market uncertainty and translated into greater volatility of energy prices. Therefore, the Commission has proposed a minimum storage obligation for EU Member States to reinforce security of gas supply ahead of winter and be better prepared for unexpected and potentially longer-lasting supply difficulties.

2. How did the Commission decide the 80% target and the intermediate steps?

Member States must ensure that the underground gas storage infrastructures in its territory are filled up to at least 80% of their capacity at Member State level by 1 November 2022, rising to 90% for the following years. The 90% target reflects average historic EU storage filling levels (with an average of 87% in the last few years). This is also the target used by Transmissions System Operators and the European Network of Transmission System Operators for Gas when they do contingency planning.

For the coming winter, the intermediary targets for each Member State are set for August, September and October of 2022. As of 2023, Member States must ensure that intermediary targets for February, May, July and September are fulfilled. Those national trajectories have been defined taking into account the specific technical characteristics, such as injection capacities of each storage site, and aggregated for each Member State.

3. How will gas storage be ensured for EU Member States without their own storage capacity?

Having sufficient gas in storage facilities across the EU is a joint responsibility and will benefit everyone. The Commission’s proposal aims to ensure that gas storages can be shared across the EU, in a spirit of solidarity. Therefore, Member States without storage facilities are required to ensure that gas is stored in other EU countries by 1 November corresponding to at least 15% of the annual gas consumption of the Member State without storage facilities.

As an alternative option, Member States without storage facilities may instead jointly develop a burden-sharing mechanism with one or more Member States with storage facilities, based on risk assessments identifying their needs. Whenever Member States are not interconnected or cross-border transmission is limited, the storage obligation should be reduced accordingly.

The EU has a well-developed network of interconnected pipelines, which allows for the sharing of gas resources. Member States will need to take all necessary measures to ensure the use of this existing infrastructure at national and regional level in an efficient way. The proposal also makes clear that no restrictions to cross-border access and use of storage or liquefied natural gas facilities can be imposed.

4. How will the Commission incentivise operators to fill the storage facilities?

The new Regulation proposes a 100% discount from the capacity-based transmission tariffs at entry and exit points to storage facilities. In addition, Member States will be free to design other measures to incentivise gas storage – whether they have storage facilities or not in their territories. As an example, they may provide financial support or compensation to market actors to make sure that the filling targets are reached, if the Member State considers it necessary. Such compensation may constitute State aid, in the sense or article 107(1) of the TFUE and may need to be notified to the Commission accordingly. The REPowerEU Communication of 8 of March has already clarified that the Union law allows Member States to provide such State aid to suppliers under Article 107(3)(c) of the TFEU.

5. What happens if Member States are not on track, or miss their targets?

It is the responsibility of the Member States to take the necessary measures to reach the filling trajectory and the filling target. To do that, they can impose deterrent sanctions and fines on market participants, as well as financial incentives or compensation.

The Commission will play a key role monitoring the filling targets and in ensuring that those are met, reporting to the Gas Coordination Group, which will have an explicit mandate to monitor Member States’ performance in the area of gas security of supply.

The Commission will regularly check intermediary targets throughout the filling period. If there is a major shortfall (more than 2%) from such intermediary targets, the Commission will issue a warning and engage with the Member State concerned, together with the Gas Coordination Group, recommending a series of measures to be taken immediately by the Member State.

If, after one month the deviation from the foreseen refilling trajectory still remains, the Commission will adopt a decision, as a measure of last resort, to oblige the Member State to take measures that effectively remove the gap to the trajectory. These measures may include for instance imposing obligations on gas suppliers to store minimum volumes of gas or obligations on storage owners to tender their capacities to other market participants.

6. How will the Commission ensure that Member States have effective control of their gas storage reserves?

Gas storage facilities are critical infrastructure. Therefore, the Commission proposes storage operators to be certified from a security of supply perspective in order to address essential security interests at Member State, regional or EU level.

If the assessment concludes that such risks exist and no other measures to remove these risks can be found, the obligation to divest the storage may become necessary. In such a case, the divestment would happen with fair compensation for the value of the asset. Where appropriate, interim measures could be introduced, to protect the control of the site until the change of ownership.

7. Will the EU budget pay for gas purchases or for incentives to fill up storage?

No. Member States may provide financial support or compensation to market actors to reach the target, if they wish. Member States providing a compensation will also be free to decide how to finance it. They may choose to finance it through the State budget or through a levy charged together with the network tariff. 

8. When will these measures enter into force?

This Regulation will enter into force following its adoption under the ordinary legislative process, meaning after it is voted on by the European Parliament and Council. The Commission has put forward this proposal as a matter of urgency, and hopes that it will be adopted by the Parliament and Council in an expedited procedure, so as to have an effect already in the second half of this year.

Regarding in particular the certification, there are around 160 storage facilities in the EU. In order to prioritise, a first wave of certification will look at the facilities with a size significant enough to play a role for security of supply, i.e. above 3.5 TWh, and which have consistently had low levels of storage at the end of the winter. These storage sites will have to be certified within 100 days of the entry into force of the legislation. The other facilities will be certified in a second wave, within 18 months from the entry into force of this Regulation.

Facts and figures

EU gas consumption

Source: EUROSTAT

EU storage capacity

The total EU underground storage capacity is of 1100 TWh (this is around 100 bcm), distributed among 160 facilities in 18 MS. The size and number of facilities varies greatly. 73% of the total EU capacity is concentrated in 5 MS: Germany, Italy, French, The Netherlands and Austria.

* The storage facility in Sweden is currently not online, but can be fully operational within one month

Factsheet on Gas Storage Proposal

Source: European Commission