6 Resilience of the European gas system
to supply disruption in 2014-15
| Committee's assessment
| Politically important |
| Committee's decision | Document cleared from scrutiny, but relevant to the debate recommended on European Energy Security Strategy
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| Document details | Resilience of the European gas system to disruption of supplies in 2014-15
|
| Legal base | —
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| Department | Energy and Climate Change
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| Document numbers | (36421), 14414/14 + ADDs 1-6, COM(14) 654
|
Summary and Committee's conclusions
6.1 A number of earlier Communications and other
documents from the Commission have highlighted the need for a
sustainable, competitive and secure energy supply, and it has
taken the view that the disruption of gas supplies in 2006 and
2009 reinforced the need for a common European energy policy.
It therefore put forward in May 2014 a Communication setting out
a European Energy Security Strategy, based on eight pillars, the
first of which contained measures to overcome major disruption
during the 2014-15 winter, and included national "stress
tests" to assess the resilience of the European gas system
to cooperate with such disruption.
6.2 This approach was endorsed by the European Council
on 23 June 2014, and the Commission has accordingly now brought
forward this Communication, setting out the results of the analysis
it has undertaken, aimed at assessing Member States' resilience
to, and ability to cope with, a potential serious disruption of
gas supplies this winter in the light of the developing situation
in Ukraine and the risk of a disruption in gas supplies from the
East. Assuming average winter conditions, it involved simulations,
based on (a) the disruption of gas to Europe via the Ukrainian
transit route for one-month and six-month periods, and (b) the
disruption of all Russian gas flows to Europe, also for one month
and six months.
6.3 As such, it provides for the first time a complete
picture of the resilience of the European gas sector, and it also
examines ways in which the serious impact of disruption might
be partially alleviated by specific national and regional measures,
particularly in the short term, but also with a view to strengthening
EU resilience in the medium and long term. It concludes by listing
17 specific recommendations.
6.4 The Government has welcomed the Communication
and its main conclusions, including in particular the emphasis
on the use of market measures wherever possible. Although there
are a number of areas which it will wish to consider carefully
with the Commission as the proposals are developed further, it
observes that the specific recommendations are targeted primarily
at Member States importing Russian gas, and are unlikely to be
problematical for the UK, which has diverse sources.
6.5 Although this Communication deals with a subject
of some interest, not least in view of the context within which
it has arisen, the approach it advocates is acceptable to the
UK, and its practical impact is likely to be felt most keenly
in those other Member States which import gas from Russia. For
that reason, we are content to clear it, but we regard it as relevant
to the debate which we have recommended on the proposed European
Energy Security Strategy. However, we also note that we made that
recommendation as long ago as 2 July 2014, and we urge the Government
to make the necessary arrangements for the debate to be held without
further delay.
Full details of the document:
Commission Communication on the short term resilience of the
European gas system — Preparedness for a possible disruption
of supplies from the East during the fall and winter of 2014-15:
(36421), 14414/41 + ADDs 1-6, COM(14) 654.
Background
6.6 The need for a sustainable, competitive and secure
supply has long been a critical element of EU energy policy, and
has been the subject of a number of earlier Communications and
other documents from the Commission. However, the Commission took
the view that the disruptions of gas supplies which hit some Member
States in 2006 and 2009 reinforced the need for a common European
energy policy, and for Member States to reduce dependence on a
single supplier. It therefore put forward in May 2014 a Communication[29]
setting out a European Energy Security Strategy, based on eight
pillars containing actions to be taken in the short, medium and
longer term. The first of these contained measures to increase
capacity to overcome major disruption during the 2014-15 winter,
and included national "stress tests" to assess the resilience
of the European gas system to cope with such disruption.
The current document
6.7 The stress tests proposal was endorsed by the
European Council on 23 June 2014, and the Commission has accordingly
now brought forward this Communication, setting out the results
of the analysis it has undertaken, aimed at assessing Member States'
resilience to, and ability to cope with, a potential serious disruption
of gas supplies this winter in the light of the developing situation
in Ukraine and the risk of a disruption in gas supplies from the
East.
6.8 The exercise was carried out by all Member States
as well as the parties to the wider Energy Community Treaty,[30]
and, assuming average winter conditions, involved simulations
of two main scenarios:
· disruption of gas to Europe via the Ukrainian
transit route for one-month and six-month periods; and
· disruption of all Russian gas flows to
Europe, also for one month and six months.
6.9 As such, it provides for the first time a complete
picture of the resilience of the European gas sector, and it also
examines ways in which the serious impact of disruption might
be partially alleviated by specific national and regional measures,
particularly in the short term, but also with a view to strengthening
EU resilience in the medium and long term. It concludes by listing
17 specific recommendations (see Annex A).
6.10 In the process, the Commission facilitated two
regional focus groups of the most vulnerable EU Member States
where the impact of disruptions was likely to be the most serious
— the South East region (Bulgaria, Croatia, Greece, Hungary,
and Romania) and the Baltic States (Estonia, Latvia, Lithuania
and Finland) — as well as a focus group for the Energy Community
Treaty partners. Norway was also consulted (as a key supplier),
as were Turkey, Switzerland, the International Energy Agency (IEA)
for a study on global liquefied natural gas (LNG), the European
Network of Transmission System Operators for Gas (ENTSO-G) which
modelled the impact of supply disruptions on the EU-wide gas system
(including a cold spell sub-scenario for two weeks in February
to cover the effect of peak demand on an already strained system),
a number of other European industry associations, and the G7[31]
group of nations.
6.11 The Communication is accompanied by a number
of annexes and staff working documents, which deal respectively
with the particular actions which the most vulnerable states (listed
above) should take; the findings of the Baltic States and Finland
focus group; the findings of the Energy Community partner countries;
the responses of the non-EU G7 and other key third country partners;
the implementation of Regulation (EU) No. 994/2010 (the 'Security
of Gas Supply Regulation'), which was put in place following the
2009 crisis; and the findings of the South-East focus group
6.12 Three key messages underpin the Communication
and working documents:
· It is imperative that the market should
be allowed to function as long as possible before intervention,
because this will enable price signals to attract new deliveries
of gas — and particularly LNG — to, and within, the
EU to those countries with the highest need, provided the necessary
infrastructure exists. At the same time, the Commission observes
that a price increase is not a supply crisis, and nor is it a
justification for intervening in the market under the pretext
of security of supply.
· Member States need to work together, and
put in place measures to achieve greater co-operation at regional
and European level. Also, whilst all Member States presented national
measures to address a possible supply disruption in their stress
tests, the Commission says that the sequencing of those measures
is particularly important, in order to ensure that no neighbouring
state suffers disproportionately as a result.
· All efforts should be made to complete
missing infrastructures as quickly as possible, particularly those
which could be fully operational during the course of this winter.
6.13 However, the Commission recognises that not
all markets are fully functioning, particularly those in the South-east
and Baltic areas, and its analysis also shows that the vast majority
of stress reports by Member States tended to be nationally, rather
than regionally, orientated, with little consideration having
been given, except in one or two cases, to how some 'co-operative'
solidarity measures and (relative) burden sharing arrangements
in one Member State could potentially help alleviate the threat
of serious disruption in another. At the same time, the Communication
stresses that any such arrangements should not be viewed as a
"free-rider" solution, and that it is important for
cost allocations between Member States to be agreed in advance
of any emergency to compensate a 'donor' Member State.
6.14 The Commission says that vulnerable Member States
should take all possible measures to reduce their demand, including
putting in place fuel switching arrangements, which would come
into play in the event of a serious supply disruption. It also
refers to the possibility of LNG augmenting supplies where appropriate,
and to gas-electricity fuel exchange arrangements of the kind
being considered by Greece and Bulgaria (with Lithuania and Estonia
having also made an agreement ensuring supplies to their respective
protected consumers).
6.15 However, it points out that the modelling carried
out by ENTSO-G suggests that, even after some supply-fuel mix
changes, "missing" EU gas volumes as a result of disruption
of Russian gas supplies could be of the order of 5-9 billion cubic
metres, which, in the absence of co-operation between Member States,
could lead to shortfalls of at least 40% (and possibly up to 100%)
towards the end of the six-month period in Bulgaria, Romania,
Serbia, Macedonia and Bosnia and Herzegovina if transit flows
via Ukraine ceased. Similarly, in the event of a total Russian
disruption, Lithuania, Estonia and Finland would suffer significantly,
as would Hungary and Poland, albeit to a lesser degree. However,
if available supplies were to be shared — for example, with
open access to storage in Latvia helping out Lithuania and Estonia,
and Greece sharing its LNG cargoes to act as a buffer for Bulgaria
— the effects of severe disruption could be dampened.
6.16 The Communication also observes that filling
storages beyond usual levels (as has happened this year, including
in the UK) has enhanced resilience, and suggests that measures
to ensure that rates of withdrawal from storage take into account
the possibility of an enduring winter period, could be important
in managing a crisis. It notes that several Member States have
implemented preventive measures to ensure security of supply in
the form of supply related storage obligations and strategic storage,
whilst one Member State has reduced transmission charge tariffs
to make storage more attractive. However, the Commission stresses
that activities aimed at facilitating storage should not be at
the expense of cross-border access.
6.17 The Communication analyses the point at which
Member States envisage the introduction of non-market measures
in the event of a prolonged supply disruption. It notes that,
in a 'co-operative scenario', the Czech Republic and Germany (which
are likely to be affected to a smaller degree in a cold spell),
apparently foresee introducing such measures pre-emptively at
a very early stage to ensure supply to their protected customers.
Greece and Croatia would also move early to non-market measures,
whilst Hungary, Bulgaria and Romania foresee using market based
measures for as long as possible (essentially in line with obligations
in the Security of Gas Supply Regulation). The Communication also
shows the point at which non market measures would kick in the
defined scenarios for all twenty-eight Member States, with the
UK, Portugal, Netherlands, Luxembourg, Ireland, France, Spain
and Belgium all being able to withstand a disruption using market
measures throughout the six-month period, and Austria, Italy,
Denmark and Sweden having to introduce non market measures only
in February. However, other Member States envisage kicking in
much earlier with non-market measures.
6.18 Finally, the Commission highlights the special
responsibility to markets 'downstream' of Member States through
whose territory gas flows. In particular, Germany, the Czech Republic,
Austria, Slovakia, Hungary and Slovenia have important infrastructure
in place which needs to be optimised in order to ensure a functioning
market, and to allow gas to flow to markets where shortages could
be significant.
The Government's view
6.19 In his Explanatory Memorandum of 29 October
2014, the Secretary of State for Energy and Climate Change (Mr
Edward Davey) notes that the European Council on 23 October 2014
welcomed the Communication, and says that the UK welcomes the
wider discussions which the Commission has had with other organisations
and groups including the European industry associations, the International
Energy Agency, G7 and Norway. In particular, it also welcomes
the focus on the importance of Member States cooperating and allowing
the market to work as long as possible, adding that non-market
measures should kick in only if all market measures have been
exhausted (whilst recognising that not all Member States' markets
are yet fully liberalised and functioning). He adds that, where
countries are particularly vulnerable to the impact of serious
disruptions from the east, regional solutions should be fully
exploited.
6.20 The Minister says that the Government also fully
endorses the principle set out in the Security of Gas Supply Regulation,
and reflected in the Communication, that measures to ensure security
of supply should be clearly defined, transparent, proportionate,
non-discriminatory and verifiable; should not unduly distort competition
and the effective functioning of the internal market in gas; and
should not endanger the security of gas supply of other Member
States or of the Union as a whole. He agrees that concerted efforts
need to be made, particularly in the most vulnerable states, to
make best efforts to drive forward or accelerate those infrastructure
projects, due to be completed over this winter, which could make
all the difference in the market responding to a severe disruption:
and he notes and welcomes the continuing role of the Commission
in helping to realise, where appropriate, longer term projects
in the most vulnerable regions (including the list of high priority
projects of common interest annexed to its European Energy Security
Strategy).
6.21 The Minister says that the impact on the UK
of the specific short recommendations is unlikely to be problematical,
given these are targeted primarily at Member States which import
Russian gas,[32] whilst
the UK is well supplied with gas with its diverse sources of production,
LNG and pipeline connections with Norway, Netherlands and Belgium.
He observes that it also has a regional arrangement with Ireland,
which for gas sharing in the event of a serious disruption could
also impact on the Republic and Northern Ireland.
6.22 However, he notes that three of the recommendations,
particularly the reflections in the staff report on the implementation
of the Security of Gas Supply Regulation, could potentially have
implications for the UK market, and will thus need to be considered
carefully with the Commission as it develops its proposals further.
These are:
Optimal use of storage
It is suggested that special tariffs/incentives might
apply to maximise storage use, with withdrawal being restricted
in certain circumstances to ensure that demand is met for protected
consumers. The UK market is the most liquid in the EU, and its
regulatory regime, including that for storage, is seen as sufficient
to attract gas even in the most unlikely of disruption scenarios.
Also, there is an argument that the withholding of gas in storage
for a period could have the perverse effect of triggering an emergency
and/or could be construed as an 'uncooperative' measure, which
could have consequences for neighbouring markets, and such measures
would seem inappropriate for the UK.
Temporary lowering of Member States supply standards
in relation to the Security of Gas Supply Regulation
The UK has a high proportion of protected demand,
given the nature of its domestic market, but it will be necessary
to continue to keep under review how the market arrangements and
safety obligations, which include consideration of the integrity
of the gas network in a supply emergency, dovetail with its obligations
under the Regulation.
Revisiting reverse flow exemptions for major arterial
interconnectors
The UK revisits the exemption on a two-yearly basis,
and cost, together with other factors, will be key. If the demand
is there, and market participants are willing to support these
projects commercially, there are in principle no barriers, but,
if the market has demonstrated that there is no such appetite,
it is unclear how this might be funded, and others would have
to bear the costs if there was no societal benefit to the UK.
6.23 The Minister says that the Government will be
considering further all the recommendations, and working closely
with other Member States if they result eventually in proposals
for legislation. He notes that the Commission also intends, in
the medium term, to issue a (non-binding) Recommendation to EU
Member States to co-operate with Energy Community Treaty partners
on third package requirements and to improve security of supply.
6.24 Finally, he says that, as the Commission develops
its thinking on security of supply measures, it will be important
to ensure the existing balance of competence between it and Member
States is respected, and that any specific proposals are consistent
with competition law and the functioning of the internal energy
market. The Government will want to focus on helping the Commission
to use its existing powers, such as those in the Third Package,
the Security of Gas Supply Regulation and other relevant EU legislation,
effectively, and in ensuring that these are enforced appropriately.
Previous Committee Reports
None.
29 (36062), 10409/14: see Fifth Report HC 219-v (2014-15),
chapter 1 (2 July 2014). Back
30
Albania, Bosnia and Herzegovina, Macedonia, Serbia, Moldova, Montenegro,
Ukraine and Kosovo. Back
31
United States, Canada, Japan, France, Germany, Italy, UK. Back
32
Less than 1% of Russian gas is thought to enter the UK market
since there are no direct supply routes. Back
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