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dossier	COM(2024)88 - Review on the functioning of Regulation (EU) 2022/1369 on coordinated gas demand reduction, amended by Regulation (EU) ...
document	COM(2024)88
date	February 27, 2024

agreement through Ukraine by 31 December 2024 (one of the remaining two Russian supply corridors – ca. 15 bcm/y). Escalating geopolitical tensions may thereafter create even higher risks of further supply cuts from Russia. Therefore, while other scenarios could occur, e.g. a disruption of the Ukraine transit route alone, the likelihood of a full Russian supply disruption scenario, regardless of the cause of the disruption, significantly increased compared to last year and is essential to consider for the security of supply of the EU.

For this reason, it is essential to consider gas demand sensitivities when preparing for future winters. This year, ENTSOG Winter Supply Outlook 2023-24 ¹² has been complemented with a summer overview and concludes that in case of a full Russian pipeline disruption, storages would need to be filled at 46% at the beginning of the injection season together with a 15% demand reduction, strong LNG supplies and enhanced capacities, to reach the required 90% at the start of the gas winter at the end of September 2024. Figure 7 presents the storage filling projections under different scenarios of continued demand reduction, without prejudice to the market or policy means that may be used to achieve this reduction, based on latest available market intelligence data and assuming a full Russian pipeline supply disruption.¹³ Those scenarios result in a storage level of 49% full at the end of the winter (31 March 2024), considering the high storage levels reported on 16 December 2022 and based on the experience of 2023 (EU average was 56% on 1 April 2023). However, the average storage level on 1 April of the reference period ¹⁴ was 33%. It should also be noted that several publications ¹⁵ point to global gas production and liquefaction capacities not increasing significantly before 2026, meaning that natural gas availability is likely to remain limited until the winter 2026-2027.

Figure 7: Monthly storage levels depending on the continuation of demand reduction

Note: The figure depicts storage levels at the end of each month.

Source: ENER Chief Economist, based on Eurostat, AGSI and market intelligence data on gas flows

Figure 7 explores three scenarios:

- “No continued demand reduction” scenario: Russian pipeline imports are disrupted and the reduction in gas demand does not continue beyond 31 March 2024. This would lead to storage level falling to 64%, well short of the 90% target by 1 November 2024, and completely depleted by February 2025.

- “Continued demand reduction until November 2024” scenario: Russian pipeline imports are disrupted and with a continuation of gas demand reduction until November 2024 achieves the storage target of November but quickly depletes afterwards reaching only around 10% of filling levels by end-March 2025. Which would therefore risk the security of gas supply of the EU for the following winter 2025-2026.

- “Continuation of demand reduction to March 2025” scenario: The scenario in which Russian pipeline imports are disrupted and with a continued 15% demand reduction, storage levels reach the November storage target. Furthermore, the storage levels could be around 36% by the end of March 2025. Which can be considered as an adequate level before the 2025 injection season.

Those scenarios consider key elements of security of gas supply such as the evolution of the storage levels through the winter and the developments regarding the Russian and the global gas supply. Furthermore, there are an additional culmination of downside risks for the security of supply of the EU to consider that could happen on top of the aforementioned scenarios, such as potentially increased global LNG demand and a certain rebound of industrial gas demand. A particularly significant uncertainty is the weather, as a colder than average winter 2023/24 or 2024/25 would have a significant impact on the EU’s security of gas supply. Assuming a 15% reduction and the highest demand for each month between 2014 and 2021, annual demand could increase by 28 bcm. ENTSOG’s Winter Supply Outlook confirms that in case of a cold winter, a 15% demand reduction is necessary for the gas network to be capable of satisfying demand and reaching at least a 30% storage filling level.

Therefore, although the EU has limited leverage to increase the global gas supply, storage management (supported via the Storage Regulation’s ¹⁶ amendments to the Gas Security of Supply Regulation and storage trajectories) and demand reduction proved effective to ensure the security of gas supply of the EU since the beginning of the crisis. They remain important tools, should storage levels reach inadequate levels during the remainder of winter 2023-2024, or should downside risks materialise. However, markets are responsive to price increases, which may facilitate sufficient demand reduction in case downside risks materialise.

Furthermore, ACER insists in its opinion ¹⁷ on ENTSOG’s Winter Supply Outlook 2023-2024: “The materialisation of […] risk factors may lead to supply scarcity […]. Forced gas demand reductions would come next and involuntary demand curtailment of non-essential gas consumers would be a last resort emergency measure”. Acer also calls for “continued vigilance with respect to gas supply situation and for monitoring the implementation of the EU gas demand reduction regulation”.

IV. Conclusion

To mitigate the serious security of supply risks in 2022, in the context of REPowerEU, the EU adopted Regulation (EU) 2022/1369 in order to reduce gas demand by 15%. In March 2023, the EU decided to prolong this reduction through Regulation (EU) 2023/706, considering, among others, the urgent need to refill storages and remaining tightness in the market due to e.g. low hydro and nuclear availability.

This report indicates that, while the security of supply situation has improved thanks to targeted investments and a number of measures - including the reduction target of the Demand Reduction Regulation which has been exceeded by Member States - the situation remains delicate. This is partly due to global gas markets still being tight and expected to remain as such until 2026 when new liquefaction capacities will come online. There are other remaining risks that, if they materialise, may contribute to further tightening the supply and demand balance, such as further possible gas supply disruptions, including a halt of Russian gas imports or a disruption of existing critical infrastructure in the gas sector, a rebound in Asian LNG demand, a cold winter and low hydropower storage. Furthermore, the wider geopolitical landscape has further deteriorated, as armed conflicts of high intensity have hit several other supplying and transit regions, such as the Middle East and the Red Sea.

Demand reduction has significantly contributed to phase out 65 bcm of Russian gas in 2023, which was primarily achieved by households and in the industrial sector. Moreover, to guarantee a high level of winter preparedness and to ensure that Member States comply with the 90% storage filling target of 1 November 2024, EU storages must remain at a sufficiently high level through the winter. In 2023, like in 2022, demand reduction has been pivotal to end the winter with adequate storage levels and to provide the necessary flexibility in summer so that the 90% storage target could be met, while keeping prices to lower levels and containing volatility. Demand reduction also helped reaching the storage target in August, well ahead of November. This also led to EU market participants storing gas in Ukraine at the end of summer 2023, mutually reinforcing the security of gas supply of the EU and Ukraine.

Furthermore, it is essential to consider the Demand Reduction Regulation together with the effects of the Storage Regulation. Both elements are part of the security of supply architecture of the EU and mutually reinforce each other. Gas demand reduction gave Member States and market participants the required flexibility to meet the storage targets while preserving the already tight global gas market from additional pressure.

Should the supply situation remain tight or further deteriorate and put the 90% storage target of November 2024 at risk, demand reduction will continue to play an essential role in 2024 and beyond to stabilise the gas market.

1 IEA World Energy Outlook 2023 indicates that 250 bcm/y of liquefaction capacity is expected to come online before 2030, the vast majority of which is only expected in between 2025-2027.

2 Episodes of significant volatility occurred e.g. after strikes at Australian LNG facilities were announced in September and after the Balticconnector disruption and Hamas attack in October.

3 Report COM(2023) 173 and SWD(2023) 63, reviewing Regulation (EU) 2022/1369.

4 How to Avoid Gas Shortages in the European Union in 2023 – Analysis - IEA.

5 https://iea.blob.core.windows.net/assets/601bff14-5d9b-4fef-8ecc-d7b2e8e7449a/GasMarketReportQ12024.pdf .

6 https://www.entsog.eu/outlooks-reviews#winter-outlooks-and-reviews .

7 Report COM(2023) 173.

8 The 9 EU Member States are Belgium, Germany, Greece, Spain, France, Croatia, Italy, Hungary and the Netherlands. The analysis is based on public data reported only by their national transmission system operators which enable the estimation of industrial and residential gas consumers. The analysis is complemented with Eurostat data of gas consumption for power generation.

9 ENER/CET calculations based on Eurostat series NRC_CHDD_M. Note that Eurostat calculates the EU-total as the space-weighted (geographic) average of the data for the individual member states. In the context of the present analysis, such a weighting is inappropriate. We have therefore re-calculated an EU total as the average of the individual member states, weighted by their population (demo_gind).

10 The reporting of gas consumption in the power sector lags behind the overall gas consumption reporting. Therefore, the timeframe includes only the period from August 2022 to October 2023.

11 Energy Balance 2021

12 https://www.entsog.eu/outlooks-reviews#winter-outlooks-and-reviews

13 Assumptions:

- Storage levels as of 08 December 2023 (91.3%)
- Pipeline supply (other than Russia) is the average between January 2022 and October 2023
- No Russian pipeline supply as of the start of the simulation
- LNG supply is equal to maximum LNG supply in 2023.
- Average EU27 gas demand of the reference period, applying percentage reductions as stated.
- Exports to Switzerland, Ukraine and Moldova based 2022/23 flows.

14 The reference period is from 2016-2021;

15 IEA publication, GIIGNL publication.

16 Regulation (EU) 2022/1032 of the European Parliament and of the Council of 29 June 2022, amending Regulations (EU) 2017/1938 and (EC) No 715/2009 with regard to gas storage.

17 ACER_Opinion_11-2023_on_ENTSOG_Winter_Supply_Outlook_2023-2024.pdf (europa.eu)

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