Brussels closes its last energetic meetings of the year to face a 2023 that promises to be more demanding than the previous year. The last pending issue was the agreement to cap the price of gas that Europe buys in the face of the possible ‘bumps’ of the market before a definitive closing of the tap with Russia in the coming year and a greater Asian demand. A pact they have made Teresa Ribera and the rest of ‘European colleagues’. Although the concluded agreement has certain risks.
Most members of the European Union have triggered this year the search for new agreements to buy both natural gas and liquefied natural gas (LNG) to face the energy crisis. That is why this agreement has been so difficult. Because the decision is delicate. Europe communicates to gas suppliers that the price is capped while it seeks to increase contracts. From the energy sector they comment with Vozpopuli what this matter can be “dangerous” in the short and medium term.
Since the outbreak of this war, member states have announced plans to give a big boost to the capacity of LNG import terminals, including extensions of the terminals in operation, throughout the continent. In Spain, for example, the case of the musel which plans for the first time in its history to be put into operation after years in hibernation.
as they remember in Global Energy Monitor (GEM), until the end of November, the response to the crisis has brought with it the announcement of 195 billion cubic meters (bcm)/year additional capacity to come online between 2022 and 2026, according to GEM data. Before the war, the EU’s operating import terminals had 164 bcm/year of regasification capacity available.
“A lot of time and money has been invested in Europe’s big bet on LNG capacity this year,” says Greig Aitken, Project Manager for Europe Gas Tracker. “Limited and expensive global LNG supply remains the fundamental problem that these new projects cannot overcome in the short term. When supply shortages subside in 2026This overcapacity infrastructure will have to be used to prevent it from becoming stranded assets, but doing so will jeopardize Europe’s climate goals, as they call for substantial cuts in gas consumption.”
Seven regasification plant projects are expected to start operating in 2023 with a potential capacity of 36.6 bcm/year. Using the GEM data, assuming projects not yet under construction come online on time by the end of 2023, Europe would have 78.7 bcm of its import capacity in the face of the crisis from February 2022 and it would make it possible to expand the storage capacity that, right now, exceeds 90%.
‘Plan B’
The countries have a ‘plan b’ if this agreement scares away these providers. The agreed mechanism is activated when, for three consecutive daysthe price of the TTF index reaches €180/MWh and surpass in €35/MWh the reference price of the global LNG markets. But there are levers that suspend the mechanism if things get “dangerous”.
A declaration of emergency both at EU and regional level in the natural gas sector cancels the agreement. It can also be canceled if it is considered that financial market instability is taking place, in particular, if an increase in guarantee requirements (‘margin calls’) is detected for companies that operate in organized gas markets.
Another alarm signal that could lead the signatories to deactivate it is that there is a decrease in the arrival of LNG that affects the security of supply could also suspend the mechanism. And finally, a lack of control in the demand for gas due to low temperatures or electricity production needs would be another lever to suspend the cap.
This risk is assumed almost unanimously by the member countries. Finally, countries like Spain or Italy have managed to Germany support a cap on the price of gas thanks, in part, to the fact that an agreement on the acceleration of renewable projects is included in the pact (permitting). has only opposed Hungary and they have refrained so much Austria as the Netherlands.
More gas while reducing emissions
The member countries notify their suppliers that they are now going to limit the price at which they can sell the gas and, in the long run. This weekend they have announced that, in the long term, they are going to use less gas than they thought thanks to a greater ambition in cutting CO2 emissions. ‘Your’ gas has an expiration date in Europe.
Something that partners like United States and Qatar, which they plan new extraction projects for 2026, as they recall from Global Energy Monitor. Investments that they expect to be profitable thanks, mainly, to Europe.
The package agreed by the European Parliament and the Council to achieve the goal of reducing greenhouse gas emissions of 55% in 2030 compared to 1990, it will reduce the use of gas. The commitment, adopted within the Union, strengthens the EU Emissions Trading System (ETS), applies emissions trading to new sectors for effective climate action across the economy and establishes a Social Climate Fund .
Is increased the ambition of ETS that sets a price on CO2 and reduces the allowable level of emissions each year in sectors including heat and power generation, energy-intensive industrial sectors, and commercial aviation.
The agreement will reduce emissions from ETS sectors by 62% by 2030compared to 2005 levels. This increased emissions reduction ambition will hit gas consumption in Europe and slash imports to these suppliers.
