- “the Importance Of Gas Storage Facilities In Europe”
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“the Importance Of Gas Storage Facilities In Europe” – With gas prices falling, there is less incentive to fill storage sites during the summer when prices are low. [Shutterstock]
Abandoning its usual security of supply role, gas storage is vying for a central position in Europe’s vision of a hybrid energy system combining renewable electricity and low-carbon gases like hydrogen. But getting there won’t be smooth sailing and regulators are watching closely.
“the Importance Of Gas Storage Facilities In Europe”
The main value of gas storage in Europe has traditionally focused on the security of the source, ensuring people can continue to heat their homes in the event of a cold spell or sudden supply.
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This is due to change in the coming years. Gas storage operators are increasingly positioned in new markets – first as reserves for variable wind and solar power and, in the long term, as providers of “flexibility” services in future energy systems where electricity and gas will be closer together. integrated.
With a capacity of 1,200 terawatt hours (TWh) in Europe, the potential for gas storage is enormous. But the path to such a hybrid energy system is uncertain. And, in the meantime, the immediate challenges are mounting.
“The situation has changed a lot in the last ten years. Gas is now cheaper than a decade ago and has reduced the commercial value of storage,” said Ilaria Conti, head of the gas program at the Florence School of Regulation.
“Now, with the falling gas prices, the prices are falling and the storage sites are even becoming a financial burden in some cases, forcing some companies to close unprofitable sites,” he said in an interview.
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So, falling gas prices are good news. This shows the EU’s efforts to liberalize the gas market have actually paid off, bringing cheaper gas to consumers. Network connections have also increased, meaning gas can now flow faster to where it is needed, making the system more resilient than ever before.
The liberalization of the European gas market is widely recognized as a major success by industry analysts. But EU politicians are reluctant to celebrate because liberalization itself has failed to deliver another key goal – diversification of supply. Ironically, Europe is now more dependent on Russian gas than ever before.
From up to €10 or €12 a decade ago, the spread between summer and winter prices at the TTF gas hub in the Netherlands has now dropped to an average of €2. Meanwhile, gas storage costs have remained unchanged at around €5 or €6 per Megawatt hour (MWh).
This means there is now less incentive to fill storage sites in the summer when prices are low, Conti said. According to industry data, gas storage capacity fell by 4% over the past two years, as more sites were forced to close due to falling prices, said Gas Infrastructure Europe (GIE), the trade association.
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This has direct implications for energy security. “The risk of reducing the demand load increases from a 10% reduction in gas storage” in winter, GIE said in a statement earlier this year.
The risk to security of supply was highlighted in February last year when Britain and Ireland were hit by a cold wave dubbed ‘The Beast from the East’, which brought polar air from Siberia to Europe. The timing was particularly bad. The year before, British Gas owner Centrica announced the closure of the country’s largest gas storage facility, citing economic and safety reasons.
As the UK is hit by cold weather, gas demand rises to multi-decade highs and energy operators have to rely on imports of Liquefied Natural Gas (LNG) from Qatar and – for the first time – the US. British coal-fired power plants were also called to the rescue, running almost flat during the cold snap to reduce the need to burn gas for electricity.
For Conti, the ‘Beast from the East’ is a perfect illustration of the “insurance value” that gas storage brings to the energy system. “Europe will not get through the winter without gas storage,” he said.
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“This is the paradox of gas storage: prices rise when there is a need to tap into storage sites. But there is no incentive to recharge when prices are low.
Some European countries may have the same problem as the UK. Gas storage facilities are still considered a strategic asset, especially in places like Poland and Hungary, which are highly suspicious of Russian import dependence.
However, the immediate future looks uncertain as the market ignores the “insurance value” of gas storage. “It is important that the market recognizes the value of this insurance and remunerates it,” said Conti. National regulators can help achieve that, he said, but also “needs political guidance at EU level to ensure the consistency of decisions made with a long-term perspective”.
In November, the European Commission published a long-term strategy for energy and climate change, making the case that Europe must reduce global warming emissions to zero by 2050 in order to meet the goals of the Paris Agreement.
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The target still needs to be approved by EU member states, which have conflicting views on the matter. But whatever target is finally adopted for 2050, gas network operators will know that fossil-derived natural gas must be phased out of the EU’s energy mix.
Together with the electricity grid operator, they have started working on a zero-emission scenario for mid-century as part of a joint grid development plan. “And that automatically means there will be no fossil gas in the mix,” said Jan Ingwersen, general manager at the European Transmission System Operators Network for Gas (ENTSOG), who spoke in a recent interview.
For gas storage operators, connecting with the electricity system means a radical departure from the traditional business model. In fact, it opens up new challenges and opportunities.
Today, the interaction between gas and electricity is mostly a one-way street where gas turbines generate electricity, often as a backup for variable wind and solar power. But more than the opposite is now starting to happen, with power-to-gas facilities converting electricity into hydrogen that can then be stored in the existing gas network.
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According to the European Commission, these power-to-gas installations can play an important role in the energy system of the future by enabling the storage of renewable electricity production from wind and solar power.
“What we see in the future is the combination of gas and electricity as energy carriers – so it’s a hybrid system approach, which is also called sector coupling,” Ingwersen said.
European electricity and gas operators are currently working on a joint network plan based on a carbon budget that includes a zero-emission scenario for 2050. “And that automatically means there will be no fossil gas in the mix,” Jan Ingwersen said in an interview.
Hybrid energy systems that combine gas and electricity are indeed at the center of the European Commission’s 2050 scenario.
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“Integrating electricity and gas infrastructure – for us in the Commission it is clear that the way to go,” said Klaus-Dieter Borchardt, Deputy director general in the Commission’s energy department.
According to Borchardt, the benefits of doing this are clear. Using existing gas infrastructure instead of building new power lines will provide clear cost savings for the wider energy system, he told attendees at a recent event. In addition, an economy dependent on electricity requires fully digitized infrastructure, which increases cyber security threats, he said.
“A hybrid system based on two pillars is, in our opinion, more resilient and will increase the security of supply,” said Borchardt, citing the “storage capacity” of the gas system as an example of the value gas can provide in the future. low carbon economy.
Even the electricity sector does not dispute the value of gas storage in hybrid energy systems, as it reduces the need to build new electricity lines.
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“We fully support finding the basis that there is a large storage potential in the gas system,” said Kristian Ruby from the EU power sector association Eurelectric, who also spoke at the event.
“As expected, we can’t set up all the wind turbines we want because the people don’t want them. As we want, we can’t set up all the transmission lines we want, because the people don’t want them,” Ruby said in a recent interview.
However, they are also interested in electricity storage, which is expected to grow exponentially in the coming years as battery costs continue to fall.
“Is the future all electric? No, we know,” said Ruby. The real question, he added, is whether a low-carbon gas like hydrogen can be produced in sufficient quantities to contribute to the decarbonisation of the energy system.
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Also, reliable estimates are hard to come by. Klaus-Dieter Borchardt of the European Commission said the jury is still out on how much cost-saving gas infrastructure can bring with hybrid energy systems, pointing to
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