Netherlands Pushes To Scrap EU Gas Storage Mandate After $1.14 Billion Bill

Authored by Tsvetana Paraskova via OilPrice.com,

The Netherlands considers that the current EU system of gas storage targets ahead of winter is inadequate and burdens governments that have to pay for meeting the EU-wide obligations.

The Dutch government has already spent almost $1.14 billion (1 billion euros) this summer season alone on building up inventories, while this task should fall mostly on the gas market participants, Climate Minister Stientje van Veldhoven said in a letter to Parliament cited by Bloomberg.

The Netherlands is a relatively small EU gas consumer, but it is a major natural gas hub and home to the EU’s benchmark gas trading futures market, the Dutch Title Transfer Facility (TTF).

The current EU rules on mandatory gas storage levels consider storage capacity rather than consumption, the Netherlands argues.

Moreover, this spring-summer filling season has been particularly difficult and very expensive for the EU member states as natural gas prices soared in the wake of the Iran war and the very few LNG cargoes that make it through the Strait of Hormuz.

The price spike and the concern about near-term supply have deepened the backwardation structure of European gas prices, discouraging holding supply for later deliveries. Backwardation is the market structure in which prompt contracts trade higher than those further out in time, signaling concerns about immediate supply.

Weeks ago, the Dutch gas network operator said the Netherlands would miss its target to fill natural gas storage sites ahead of the winter, in one of the first evidence-based signs that Europe may be struggling to have sufficient supply for a harsh winter.

Germany, the EU’s biggest economy, is considering expanding a key market incentive to encourage traders to raise gas storage levels ahead of the winter. The government is looking to use the existing market tool, the autumn tender for Long Term Options, or LTOs, on a larger scale.

Germany has the world’s fourth-largest natural gas storage capacity, but this capacity was only 57% full as of September 24, according to data by Gas Infrastructure Europe. That’s a historically low level, and Germany risks gas shortages this winter if it turns out to be colder than previous years, the country’s gas storage association, INES, warned earlier this month.