Brussels Think-Tank Launches Supply Security Proposal
Brussels-based economic think-tank Breugel proposed a new, pan-EU approach to strengthen security of gas supply January 20. It calls for a mix of capacity and commodity contracts to manage a severe crisis should one affect gas supplies. So far the approach to this problem has been flawed, the authors said. It has focused on central and eastern Europe, owing to disputes between Russia and Ukraine affecting that region, whereas all member states are at risk to some extent, they say, owing to turmoil in north Africa, for example.
Presenting it, Georg Zachmann and Simone Tagliapietra suggested that suppliers might need to have on hand or available at short notice up to a fifth of their portfolio, in order to cope with a serious problem, should one arise. This would be their required security margin.
Storage capacity, domestic production and demand-side management, including interruptible contracts and fuel-switching, could all be part of the mix and each supplier would be free to choose the cheapest or best way to find that extra gas, with the costs of these options and the appropriate capacity contracts being ultimately borne by consumers. Storage, owing to the high cost of building it, would not be the likeliest option, the authors said, stressing the need for a low-cost approach.
LNG and pipeline gas call options would be fine, the authors said, but signing these with existing pivotal suppliers would defeat the purpose since it may have been these suppliers that triggered the gas supply shortage. “We are happy to buy gas from Russia,” said Tagliapietra. “It is not a problem and it is always the most competitive. But we need an alternative to switch to,” he said, so that foreign policy would not be affected by gas supply arrangements.
Once a threshold level of supply failure is reached, the European Commission would have the power to issue mandates: one to the pipeline operators’ group, Entsog, to co-ordinate the use of infrastructure; and one to national competent authorities to ask suppliers to release their security margin. The gas would have to remain beyond the reach of governments to avoid market distortions.
The study found there was much spare capacity in the system bringing gas into Europe, mainly owing to declining gas demand, but if that includes items such as the OPAL line, which is dedicated to Nord Stream, that will be of little benefit as only Russian gas can flow through it. There is also a lot of unused LNG regasification and storage capacity in Spain, but a lot of money will have to be spent on building pipelines across the Pyrenees to bring the molecules to where they are needed.
Stefan Moser, who was at the launch and heads the EC’s security of energy supply unit, welcomed the proposal, saying that if it gained traction at a regional level, it would have prospects for wider adoption at EU level. He said the member states would be putting their heads together to find ways of reducing the costs of secure gas supplies. But so far the EC has taken a regional approach, recognising regional diversity. “Your idea for a market based solution could be tested at a regional level,” he said, commenting on the proposal.