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Europe will pay 40 billion euros more than last year to replenish its gas stocks. “Winter will be difficult without Russian gas”

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Russia’s invasion of Ukraine has raised a huge question mark over the stability of gas supplies to the region’s economies and consumers, with reference prices almost 300% higher than a year ago.

Russia typically supplies about 40% of its EU gas needs, but is now retaliating against European sanctions by reducing supplies, making it difficult for Member States to replenish deposits, which is necessary to ensure that people can continue to heat their homes. winter, if Moscow closes the taps.

“Winter will be difficult without Russian gas. The key is to fill the deposits as much as possible during the summer,” Guy Smith, Vattenfall’s director of gas and LNG at Reuters, told Reuters.

The European Commission has said that immediate supply emergencies will take precedence over replenishment of stocks, with the objectives not applicable if a gas supply emergency is declared at European or regional level, which means that stock levels will be inadequate.

The possibility of significant reductions in supplies is growing, with Bulgaria and Poland no longer receiving Russian gas, while Ukraine has stopped transit of Russian gas through a major transit point in Russian-owned territory.

Some subsidiaries of the German gas supplier Gazprom, which was placed under the auspices of the German energy regulator earlier this year, are no longer receiving gas, while the Russian company Gazprom has stated that it will no longer be able to export gas through Poland. through the Yamal-Europe pipeline.

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Gases stored are usually about a quarter of the fuel used in Europe during the winter, when demand is high.

As of May 10, Europe’s gas stocks were nearly 38% full, up from 26% on March 21, data from Europe’s gas infrastructure showed.

The European Commission has asked gas storage operators to fill the depots with at least 80% capacity by November 1 this year, but some gas-dependent Member States have gone even further, with Germany and Italy ordering the depots to be 90% full by November 1st.

Achieving these targets will not be cheap, given the high prices, which means that the amount of gas to be purchased will cost about 4 times more than it would have been in the same period last year.

“Taking as a starting point the end of April, the total volume of gas accumulated in deposits from the beginning of May to the end of October should reach 52.5 billion cubic meters, which will cost around 58 billion euros. , based on a price of about 105 euros / MWh “, said Leon Izbicki, associate at European Natural Gas at Energy Aspects.

The same amount of gas would have cost about 14 billion euros based on prices of about 25 euros per megawatt hour in May 2021.

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Higher costs mean that governments will likely have to step in to provide incentives to ensure that deposits are full. We have seen governments pave the way for such financial instruments, for example with Germany’s new gas storage law … and Italy’s gas storage decree, which includes provisions for a contract for difference, “Izbicki said.

Filling up Germany’s gas stocks alone would cost about 25 billion euros, RWE said.

Germany, Europe’s largest consumer of gas, currently has stocks of about 39% of capacity, up from 26% on March 21.

“Storage levels have recovered quite well … there is a lot of caution exercised by a lot of counterparties, who make sure they have enough stocks in the warehouse. But it does come at a cost as quickly as possible, ”said Smith from Vattenfall.

Vattenfall has a warehouse in Germany, close to the Dutch border. In the past, gas prices were usually cheaper in the summer months than expected in the winter, providing an incentive to store gas when demand is low, with the prospect of selling at a much higher price when demand peaks. winter.

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