Testing the new framework during the February 2012 cold spell
The beginning of 2012 saw extremely cold weather conditions all over Europe for a prolonged period of two weeks. Gas consumption in six Member States reached historic levels18 and approached them in another six. Electricity demand also hit peaks. In parallel, supply limitations such as the problems with unloading LNG ships in Italy due to bad weather conditions or moderate slumps in gas supplies coming from Russia tightened the supply-demand balance, and the EU gas network and gas market proved its resilience. Italy and Poland declared “alert” level19, and only Greece declared “emergency”. for a limited period of time because of a simultaneous appearance of adverse conditions20. Market-based mechanisms all around the EU such as using reverse flows, swaps among TSOs and between shippers, increased withdrawals from underground gas storage and optimization and reshuffling of gas purchases within shippers’ portfolios generally maintained the supply-demand balance. Gas prices reacted promptly and in an adequate manner.
(Source: European Commission Market Observatory for Energy, DG ENER)
The scope of this article does not allow for an in-depth analysis of the cold spell, however the lessons learnt can provide valuable guidance for the future. An integrated, functioning and liquid internal energy market is essential for energy security, in which natural gas undertakings can react to price signals and gas can flow to areas with the highest demand. The solidity of a 500 bcm gas market outweighs the potential of any national measure that can be mobilized for security of supply. The infrastructure projects implemented since 2009 have already improved preparedness but interconnection capacities should be further increased. Gas and electricity security of supply are becoming increasingly interconnected. With the increasing role of gas in electricity generation, suppliers and TSOs must be prepared for sudden consumption spikes.
Transparency of information is essential to assess where shortages excist and how they can be resolved. Clear and public information on flows and available capacities can prevent panic both on the commercial and political level. National measures can seriously impact security of supply in neigh bouring countries. The coordination between Member States is therefore essential and should take place if an emergency is likely to happen. Working level contact among crisis managers in national regulatory authorities and ministries should be established and maintained.
Conclusions
There is remarkable progress in all the three pillars of the Union’s gas security of supply policy. Regulation 994/2010 includes all the actions that should be realized in the next 5-10 years, therefore it must be implemented in full and on time. The effects of the measures could be amplified with stronger regional cooperation, for instance, as it takes place within the Pentalateral Forum or going even further, i.e. drawing up joint regional risk assessments and plans, an initiative that currently exists only in the Baltic States. An agreement on the renewed TEN-E instrument should pave the way for building all the missing links in the coming decade that would lead to increased liquidity on the European market and the elimination of internal bottlenecks. The work should continue on the field of external relations. The decision on the exchange mechanism regarding intergovernmental agreements between Member States and third countries in the field of energy will contribute to ensuring the compatibility of IGAs with Union law and coordination among Member States. Further political steps are needed if the EU wants to become a global player in energy. National external energy policy ambitions will need to take into account the Union position. This could lead to ultimate solidarity, where the combined weight of the Union could foster better representation of the interests of those who have less potential vis-a-vis third countries. In parallel to the political ambitions, the existing partnerships with third countries should continue and improve. We must not forget that all these measures address the challenges of the past and partly the present. They are in no way adequate to ensure security of gas supply of tomorrow, with an increasing level of renewable energy, a changing nature of gas use in electricity generation or potentially in transport. The focus will not be on strategic issues such as major pipelines or other infrastructure, or political relationships. More day-to-day problems such as efficient trading, adequate forecasting of fluctuating within-day gas demand and new products offered by suppliers will dominate the agenda. The gradual divergence between flows and commercial transactions will raise new challenges, i.e. it will be more difficult to have an exact overview of the gas flows and the utilization of different parts in the system or to track possible supplies to a Member State. These will mainly have to be tackled by market participants and policy makers will need to guarantee an appropriate regulatory framework (such as market transparency rules, prohibition of insider trading, measures to prevent cartelisation among suppliers), all elements now being developed through the network codes and the implementation of REMIT, within the known framework of the third package and the EU competition rules.
18 The actual peak gas demand overtook the 1-in-20 forecasts in Austria, Belgium, Greece, Hungary, Luxembourg and Poland. 19 As set out in Article 10 of Regulation (EU) 994/2010. 20 These included simultaneous record high demand in both gas and electricity, tight electricity supply in the region and problems with mobilizing alternative sources (low hydro levels and blocked transport of solid fuels) and reduced gas flows from Turkey.
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