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Gas crisis: Europe could tap into emergency supplies as supplies have run out


Europe may need to tap into emergency gas supplies, which are normally considered banned as the continent walks into winter with historically low supplies, experts warned.

Nearly record-high energy prices have put 25 retailers out of business and raised household bills. With falling temperatures, further increases in wholesale prices are expected in the coming weeks.

Persistent cold weather like the beast from the east in 2018 could see Europe’s gas storage tanks emptied completely by February, analysts say, driving prices higher and increasing pressure on companies and governments to resort to emergency supplies.

“If we have a cold winter, European storage could be very, very scarce,” said Graham Freedman, chief analyst at Wood Mackenzie The independent one. “Especially when Asia has a cold winter too, because that would take more liquefied natural gas off the market.

“We could get in an extremely tight position so that Europe could use cushion gas.”

So-called cushion gas is stored in storage facilities across the continent, but is normally never used, as its extraction poses safety risks and could permanently damage the underground gas storage facilities. In order to maintain the pressure in the boreholes at all times, a certain amount of gas is required.

“These are exceptional circumstances,” said Mr. Freedman. “There is an additional reserve in the soil that is normally not taken into account. It has been used very little in the past.

“The difference here is that we are potentially looking at a pretty large scale. If everything goes wrong, we could use it until February. “

The proposal comes because Europe enters the coldest season with around 15 percent fewer gas supplies than normal.

Around 83 billion cubic meters (billion cubic meters) are stored, compared to an average of 97 billion cubic meters at this point in time over the past five years. Using 10 percent of the continent’s cushion gas would free an additional 15 billion cubic meters and potentially prevent a situation where the reservoirs would run out, according to Wood Mackenzie’s calculations.

“It would help calm the markets and build confidence that supplies will be enough to make it through the winter,” Freedman said.

Wood Mackenzie’s team of analysts suggested that if storage is near zero, governments may need to relax the rules to give businesses more freedom in using cushion gas.

A source at a major UK storage company didn’t rule this out. “Protective measures are in place due to the potential impact on on-site security. Pillow gas is fundamental to the integrity of the salt caverns where gas is stored, â€the person said.

“We will weigh these factors, but it would be an important decision for us.”

Such a move would be controversial and one storage company, Germany’s Uniper, said it would not tap into the supplies for security reasons. Other European gas storage companies declined to comment or did not respond to questions.

Guy Smith, energy trader at Vattenfall, was skeptical of the use of cushion gas, saying that only a relatively small amount was available.

“The memory is not used up. There will always be enough gas, but prices have to be optimized, â€he said. “When stocks are low, prices can be expected to rise and fall sharply in winter.

“Ultimately, that depends on the weather. Storage is effectively a buffer for this volatility. The less storage space you have, the more exposed you are. “

The UK government has been heavily criticized for allowing the UK’s largest storage facility, Rough, to close in 2017. The North Sea facility contained three quarters of the British gas storage facility.

Nick Wye, chairman of the Underground Energy Storage Operators trade association, questioned whether additional gas storage would have alleviated the current crisis.

While the UK has significantly less storage capacity than many other European countries, it also has more gas than others, with around half of the demand being met by domestic supply, Wye said.

“Prices have risen across Europe, not just in the UK. Even if we had more storage space, that wouldn’t have made much difference in my opinion. “

“The biggest problem is the lack of supply combined with increasing demand, especially in Asia. If you have a long cold period, stocks are more likely to be reduced. It’s not going to be an easy winter. “

He added that there were too many variables, including political decisions made by Vladimir Putin’s Russia, for anyone to confidently predict what will happen in the gas market.

The Russian president has been accused of deliberately withholding supplies to increase pressure on European governments to authorize the opening of the new Nord Stream 2 pipeline through the Baltic Sea.

The project is complete but is not yet delivering gas because European countries, including Germany, have held back on certification, a move that has angered the Kremlin.

Nord Stream 2 will double Moscow’s gas exports to Germany, but will also bypass Ukraine, which would lose important revenue from transit fees for gas flowing through its territory over existing routes.

Last week, Germany suspended pipeline certification, which has led to a further rise in gas prices. Critics argue that the new pipeline will increase Europe’s energy dependence on Russia.