Storage tanks are difficult to fill: Moscow is putting even more pressure on the gas sector

It is difficult to fill the memory
Moscow is putting more pressure on the gas sector

By Niles Creamer and Thomas Steinmann

Under a new law, German gas storage facilities must reach the minimum filling level on specific dates. But Russia and its attack on Ukraine continue to pose new challenges to operators.

Russia’s announcement that it will impose sanctions on former subsidiaries of the Gazprom energy group has caused a stir in Germany’s gas sector. On Thursday, the government in Moscow released a list of 31 companies in which Russian companies will not be allowed to do business anytime soon – including Gosprom Germany, a subsidiary of Gosprom. Gosprom Germany has been in the confidence of the Federal Network Agency since the beginning of April due to the attack on Ukraine, but formally it still belongs to Gosprom.

The industry was previously restless with reports that less natural gas was flowing westward through Ukrainian transport pipelines due to the war, and that for the first time gas transportation was directly affected by the Russian attack. The reason is that the Soyuz pipeline, one of the central distribution lines, passes through the competing Luhansk region in eastern Ukraine, which is partly controlled by pro-Russian units.

Moscow’s new decision will complicate an important project that the energy sector in Germany has been struggling with for weeks: under a new law on gas storage conditions passed in early April, operators of German storage facilities will have to prove certain minimums. Key dates for ensuring natural gas supply. In the future, for example, 80 percent filling will be required by October 1 and 90 percent filling by November 1. According to the EU’s plans, states must complete 80 percent of their gas storage facilities by November 1, 2022.

Storage functionality is no longer a personal matter

In the months leading up to the Russian invasion, when the gas level in some storage facilities was below average, the law was a reaction. It primarily affected plants under the control of the now-licensed Gazprom Germania – including Germany’s largest natural gas storage facility in Rehdon, Lower Saxony.

Basically, the operation of the warehouse was more or less a personal matter, and now the authorities have to say at a central point. “The government is suddenly playing a very strong role in the gas market,” said Matthias Long, an energy law expert at Bird & Bird, a law firm closely involved in enforcing the new law. “Previously, gas storage facilities were basically regulated under private law. Now a state element has been established.”

If users are fed too little gas and the storage facility cannot be filled as needed, the so-called market area manager must now intervene. In Germany, it is a trading hub called Europe, which, in consultation with the Federal Ministry of Economy, must buy the missing quantities in the gas market at the expense of the general public. In fact, the state is involved in procurement, which is the withdrawal, i.e. the question of when and how much natural gas is supplied from storage facilities to the German stage.

In 2021, more than half came from Russia

In theory, Russia’s new sanctions will prevent Gasprom from supplying Germany with Russian gas and filling its storage facilities – although this will be difficult to implement in practice. “He does not decide under Russian law what is allowed to be saved and withdrawn in Germany,” Long says. “But if the gas is no longer physically available, it certainly can not be stored.” In other words: as long as natural gas still flows, Russian sanctions will only be effective on paper in principle.

However, if Russia’s gas supply is actually cut off, only a handful of countries in Europe will be able to replenish their gas storage facilities next season, as required by the EU Commission. This emerges from the situation report on energy supply provided by the Federal Network Agency and the Federal Ministry of Economics since the beginning of May, which is available for “capital”. According to the paper, only Belgium, France, Spain, Portugal and Great Britain will be able to fill their storage facilities 100 per cent by the end of the summer if deliveries are stopped on time. The other three countries could reach 30 to 60 percent. It affects the Netherlands, Germany and Italy. After all, Central and Eastern European countries will miss the targets.

Last year, Germany received more than 50 percent of its gas needs from Russia. Green Economy Minister Robert Hebek has been working for weeks to reduce Russia’s share as quickly as possible. To this end, floating LNG terminals are to be built off the coast of Germany from next winter.

According to the report at the end of the summer, the European storage capacity of 1100 terawatt hours can only save 382 to 690 terawat hours. It mainly accounts for half of the storage capacity of the Netherlands, Germany and Italy, and can best reach the 60 per cent filling level. Western European countries have less than 200 terawatt-hour storage space.

The report’s figures are based on the circumstances under which delivery will be stopped in April. Since then, the filling volumes of German storage facilities have risen by a few percentage points. However, recently, the Russian gas company Gazprom stopped supplying to Poland and Bulgaria because both countries did not accept the new tariff terms for gas supply. The Russian side requires the contracting parties to open two accounts at Gazprombank so that payments in euros or dollars can be converted into rubles there. Weeks ago, President Vladimir Putin ordered that, unlike most supply agreements, invoices be settled in rubles.

However, according to experts, the two-account model violates EU sanctions against the Russian central bank because the ruble exchange goes through the central bank. This raises the question of how German energy companies will pay their tariffs to Gasprom in late May – and whether the controversy will intensify.

This text is original “Capital” Published.

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