European Commission calls for member states to maintain gas demand cuts

Tom Brown

27-Feb-2024

LONDON (ICIS)–The European Commission on Tuesday urged member states to maintain current gas consumption reductions as the expiration date of emergency legislation mandating the cuts approaches.

Introduced in the wake of Russia’s invasion of Ukraine and the subsequent scramble in the EU to reduce its exposure to natural gas supplies from the country, the two-year emergency bill called for EU countries to reduce gas consumption by 15% compared to April 2017 – March 2022 averages to shore up limited reserves.

According  to the Commission, governments collectively reduced demand by 18% between August 2022 and December 2023, with efforts to reduce consumption driven by soaring prices in the winter of 2022 that led to the introduction of price caps in the EU and by some individual member states.

ENERGY IMPACT
Prior to the onset of the war, the EU derived over half of its supplies of natural gas, which had been embraced as a means of lowering CO2 emissions, particularly following Germany’s move to phase out nuclear energy.

Gas had surged from under $200 per metric million British thermal units (/MMBtu) at the start of the 2022 to over $1,700 in October of that year. Pricing has subsided since then but energy pricing remains a concern, particularly for energy intensive industries.

Citing energy costs as a key factor behind a decision to push for drastic cuts at its Germany headquarters, BASF stated that 2023 natural gas pricing in Europe remained twice the 2019-21 average and five times US Henry Hub averages, although prices have fallen this year.

BASF’s move to scale back its Ludwigshafen Verbund complex was attributed by CEO Martin Brudermuller to what he termed temporary factors such as demand, and other drivers such as higher energy costs, which he claimed are “structural” in Europe.

FUTURE PROPOSALS
The current emergency legislation is set to expire on 31 March this year, but the European Commission is proposing to adopt a Council recommendation calling for member states to maintain the voluntary reductions that have been adopted over the last two years.

The target would be to maintain gas consumption at 15% below 2017-22 averages, the Commission said, with Commissioner for Energy Kadri Simson and EU energy ministers to discuss the measure on 4 March.

Despite a more stable European gas market outlook and less volatile pricing, tight global markets and geopolitical upheaval mean that EU economies need to remain vigilant, according to a Commission statement.

“The persistence of geopolitical tensions, tight global gas markets and the EU’s objective to completely get rid of Russian fossil fuels, continued energy savings are still necessary,” the Commission said.

Thumbnail photo source: Hollandse Hoogte/Shutterstock

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