Winter is coming: what can Europe do to secure its supply of gas?

Since the beginning of their invasion of Ukraine, Russia has wielded gas exports to the European Union (EU) as an unofficial weapon. With continued hostility and posturing coming from Moscow, it’s become uncomfortably worrisome that the total cut-off of gas supply to the EU could be in the cards, seriously threatening the bloc’s security of supply. Considering the EU’s reliance on gas imports, the European Commission (EC) is preparing a gas demand reduction plan to be released on 20 July.

The plan, effectively, will be a contingency plan to ensure Europe’s security of gas supply should Putin decide to turn off the tap. Already, the supply of gas in the EU is extremely tight and action such as this could make things much, much worse. Although there are already storage requirements in place, there are limits to their long-term effectiveness in the case of a total cut-off. As a result, the Commission sees a need to prepare before such a cut-off comes.

Indeed, if a cut-off is imminent, Europe is ill-prepared. The European economy is still heavily reliant on the import of Russian gas; this is the case from industrial processes all the way down to home heating. If supply were to dry up tomorrow, decisions would have to be made. Who needs gas most? How much will we have? For how long? What constitutes a real emergency? This, the EC aims to address with the Demand Reduction Plan

The plan

You have heard time and again that the European Commission has a plan, and the plan is to be ready. But how? The answer comes in four forms: re-analysis of demand scenarios, pre-emptive market-based measures, prioritisation criteria, and a reinforced coordination among the Member States.

1.?Scenario analysis

Gas demand is forecasted far ahead of time based on list of factors, however, a full-scale invasion on the European continent did not make that list of factors in prior analyses. But now it has happened. Therefore, the plan will call for a re-analysis of demand scenarios heading into the depths of next year. Such analysis will provide clarity on what the broader impact of that action will be – how much gas we will have, for how long, and what the impact of rationing will be. Already ENTSOG has provided their outlook available here.

2.?Pre-emptive measures

Perhaps the most effective preparation is to take pre-emptive action within the market. This means, according to the Commission, we should already begin reducing demand through pre-emergency measures. The details of these measures are still up for discussion and will only be a general guidance.

3.?Prioritisation

Should it come to the worst, who should get the limited supply of gas? Given the real threat of being posed this question, the EC plan includes guidance for identifying non-protected customers based on prioritisation criteria for delivering supply highlighted in the consultation document released last month:

1. Social criticality: any sector providing essential services such as health, food, safety, and security should be protected
2. Cross-border value chain criticality: any sector in a Member State that would has downstream value chains in other Member State sectors should be protected
3. Technical reduction and substitution potential: sectors without the ability to switch to alternative fuels or risk damaged installations if done should be protected.

Beyond this, there would be extra consideration for non-critical industries where economic criticality and gas dependence would come into consideration.

4.?Triggers, coordination and solidarity

As has been made abundantly evident throughout the conflict, acting as a united front is vital to the success of any response and a key advantage that the EU has against Russian aggression. Thus, the importance of coordinated solidarity will not be lost in the EC plan. Ensuring the prior three measures carry their weight can be achieved by:

• Strengthening governance through tight cooperation between the EU Energy Platform and the Gas Coordination Group. Eurelectric is amongst the trade associations involved in the Group’s discussion.
• Introducing a regional and EU-wide alert level to indicate what and when supply savings are requisite
• Specifying the actions contained in the Gas Security of Supply Regulation to coordinate in case of a regional or EU-wide emergency

When will we be ready?

According to the EC, the plan should be officially published on 20 July, a mere 12 days from this article’s publishing. Given the pressing nature of the threat and the overall uncertainty, it is understandable that the Commission is being so ambitious. Yet, such extraordinary action will no doubt come with debate, disagreement, and ultimately, delays. It is, as always, up to Member States to discuss and implement this general framework of the EC. Time will tell if Europe can agree on the plan in time to avoid the worst of winter.