Renewed gas crisis ‘likely’, says regulator

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The likelihood of renewed gas supply disruptions in Europe this winter has serious implications for the image of gas in the long run, Walter Boltz, chair of Austrian energy regulator E-Control, told EURACTIV in an interview.

Europe should work on the assumption that it will be hit by a similar gas supply crisis this winter to that of last January, when Russia halted supplies to Ukraine over a payment dispute, said Boltz.

“The basic situation between Ukraine and Russia has not improved a lot […] and the payment problem comes up every month,” he argued, pointing to the tight financial situation of Ukraine’s Naftogaz and next January’s elections in Ukraine, which make the political situation unpredictable.

“I would say there is a fair chance that something similar might happen,” Boltz concluded.

A fundamental problem remains, according to the Austrian: the Ukrainian gas transport system built by the Soviet Union was not meant to transport gas from Russia and transit it through Ukraine to Europe. Rather, it was built to pump gas from the North into storage facilities closer to Europe so that come winter, Eastern Ukraine could be supplied from Russia and this gas could then be pumped further to Western Europe, he explained.

“So if Ukraine doesn’t have sufficient storage levels, it will not be able to supply Europe in winter,” Boltz summarised. The amount of storage is a state secret in Ukraine, but the Russians for one claim that it is insufficient, he said.

The regulatory chief added that this time around people are aware of the negative consequences and might be less inclined to let the situation perpetuate. He warned that another crisis would deal a huge blow to the gas industry from which it may take several years to recover.

“What gas companies are telling us is that it’s very difficult to sell gas applications to new customers nowadays. Very few people want to switch to gas because they still have this lingering memory that gas could be cut off,” Blotz said. 

“That of course is very bad because gas has been living off its reliable supply image and environmental friendliness,” he added. A renewed crisis could lead to a big move away from gas at a time when climate considerations dictate that it should be increasing its share of power generation instead, he explained.

Nevertheless, Boltz argued that the EU would probably be able to respond better this time around, as investment has already started to flow into projects to build counter-flow capacity in Central and Eastern Europe. 

Moreover, the European Commission’s proposed Regulation on Security of Gas Supply provides a good response by obliging countries to put in place emergency plans and avoid unilateral action, the regulatory chief argued. But he warned the European Parliament and the Council against giving in to the demands of certain member states, which want to turn the directly applicable regulation into a directive that each country could transpose into national law.

“Since the member states have very often not done a very good job at doing so, I think there is a good case to have this as a regulation,” Blotz argued, “given the urgency and the natural delay that a directive would result in”.

In the longer term, volatile demand for gas has demonstrated that industry will have to rethink the long-term contracts it has struck with supplier countries like Algeria, Russia and Norway, Blotz warned. He pointed out that as these contract prices are now twice the spot market prices, supply and shrinking demand are competely off balance with one another.

The regulatory chief predicted that many companies would this year have difficulty offloading contracted supplies when storage facilities are already full.

“It remains to be seen how flexible the various producers are in [stretching] the delivery of the gas volumes or to what extent they say, ‘we need the cash and we want it now, we don’t care what you do with the gas’,” he said.

Walter Boltz was speaking to Susanna Ala-Kurikka.

To read the interview in full, please click here.

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