A simple implementation of pan-European storage obligations

About 1,100 TWh of natural gas can be stored in 115 storage facilities in 19 countries in the EU27 area, accounting for 25-30% of European consumption in winter periods. Securing high storage filling levels can therefore reduce the impact of large demand shocks and supply disruptions on prices and gas availability in Europe. The expected winter-summer price spread is the main driver of decisions by market participants to store gas. Price expectations might not fully reflect the cost of extreme demand/supply conditions. In the past year storage filling levels have been inconsistent with the price spread realised, and remained below the historical average (10% less as of January 2022). Unprecedented price levels and potential threats to security of supply linked to dependence on Russia have led national and European institutions to consider introducing storage filling obligations. The European Commission has recently put forward a proposal that “[…] aims notably at ensuring that storage capacities in the Union, which are crucial to ensure security of supply, do not remain unused, to ensure that storages can be shared across the Union, in a spirit of solidarity. For that purpose, a mandatory minimum level of gas in storage facilities will reinforce the security of supply ahead of the winter 2022/2023 and for the following winter periods.” The Commission’s proposal provides (amongst other things): - a mandatory “filling target”: storage infrastructure in each Member State shall be full to at least 90% by 1 November each year (for 2022 the filling target is 80% because “Member States will need some time to set up the necessary measures”); - a mandatory “filling trajectory”: intermediate targets for each Member State in February, May, July and September (From 2023 onwards storage shall also be specifically monitored in February to avoid sudden withdrawals of gas from storage in the middle of the winter); - a commitment by each Member State to take all necessary measures, including financial incentives and compensation for market participants, to ensure that the mandatory filling targets are reached. We assessed the potential role of mandatory storage filling provisions in a recent policy brief which was published before the RePowerEU Communication and – most notably – before the Russian invasion of Ukraine, which triggered the Versailles agreement[1] to phase out European dependence on Russian imports. In this policy brief we propose a policy measure to ensure that a target storage filling level is achieved and maintained with the smallest possible impact on the functioning of the internal gas market. The remainder of the document is organised as follows. In section 1 we present a basic version of the proposed model. In section 2 we discuss some variations on the basic model. Section 3 concludes by assessing the impact of the proposed measure on the functioning of the European gas market