Watching Government: Europe's 'gas stress test'

Oct. 27, 2014
The European Commission quietly acknowledged the possibility of a Russian natural gas supply interruption amid unrest in Ukraine when its member countries put energy security measures it adopted in May to a "gas stress test" this fall.

The European Commission quietly acknowledged the possibility of a Russian natural gas supply interruption amid unrest in Ukraine when its member countries put energy security measures it adopted in May to a "gas stress test" this fall.

It found that more gas will continue to reach homes and businesses if member countries cooperate and allow market forces to work as long as possible, the EC said on Oct. 16. "Government intervention should be carefully prepared on a regional basis and only kick in if needed," it added.

"This report shows that we are not waiting, but do everything we can do to be prepared," said Gunther H. Oettinger, EC vice-chairman for energy. "For the very first time, we have a complete picture of the risks and possible solutions. If we work together, show solidarity, and implement the recommendations of this report, no household in the [European Union] has to be left out in the cold this winter."

The report presented results of a modeling exercise by 38 European nations, including EU members and neighboring countries. It analyzed different scenarios, particularly a complete halt of Russian gas imports into the EU for 6 months.

It said the EU imports 53% of the energy it consumes, including 90% of its crude oil and 66% of its gas.

A prolonged gas disruption would have a substantial impact, with eastern EU members and Energy Community countries (Albania, Bosnia and Herzegovina, Macedonia, Serbia, Moldova, Ukraine, and Kosovo) being affected most, according to the EC. It said Finland, Estonia, Macedonia, Bosnia and Herzegovina, and Serbia would miss at least 60% of the gas they need, putting pressure on private households.

"National reports show that EU [members] and neighboring countries envisage a wide range of measures to mitigate the impacts of a supply disruption," the EC said.

Actions and limitations

Steps range from diversifying supplies to using reserves and strategic stocks to curtailing demand and switching fuels where possible, it indicated. "However, in general these plans are often too much limited to the national market and resort too quickly to interventionist measures," the EC said.

It suggested that a market-based approach should be the guiding principle, with nonmarket measures such as the release of strategic stocks, forced fuel switching, and demand curtailment only being implemented if the market fails.

"In a functioning market, price signals will attract new deliveries of gas, mainly liquefied natural gas, and limit demand. The commercial use of storage will help ensure the demand-supply balance," the EC said. The stress test report contains concrete recommendations on short-term measures for the most vulnerable EU members and neighboring countries, it added.