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Russian gas supply cuts: EU Commission proposes demand reduction

Jul 20, 2022 , , , ,

Brussels, 20 July 2022

The European Union faces the risk of further gas supply cuts from Russia, due to the Kremlin’s weaponisation of gas exports, with almost half of our Member States already affected by reduced deliveries.  Taking action now can reduce both the risk and the costs for Europe in case of further or full disruption, strengthening European energy resilience.

The Commission is therefore proposing today a new legislative tool and a European Gas Demand Reduction Plan, to reduce gas use in Europe by 15% until next spring. All consumers, public administrations, households, owners of public buildings, power suppliers and industry can and should take measures to save gas. The Commission will also accelerate work on supply diversification, including joint purchasing of gas to strengthen the EU’s possibility of sourcing alternative gas deliveries.

The Commission is proposing a new Council Regulation on Coordinated Demand Reduction Measures for Gas, based on Article 122 of the Treaty. The new Regulation would set a target for all Member States to reduce gas demand by 15% between 1 August 2022 and 31 March 2023. The new Regulation would also give the Commission the possibility to declare, after consulting Member States, a ‘Union Alert’ on security of supply, imposing a mandatory gas demand reduction on all Member States. The Union Alert can be triggered when there is a substantial risk of a severe gas shortage or an exceptionally high gas demand. Member States should update their national emergency plans by the end of September to show how they intend to meet the reduction target, and should report to the Commission on progress every two months. Member States requesting solidarity gas supplies will be required to demonstrate the measures they have taken to reduce demand domestically.

To help Member States deliver the necessary demand reductions, the Commission has also adopted a European Gas Demand Reduction Plan which sets out measures, principles and criteria for coordinated demand reduction. The Plan focuses on substitution of gas with other fuels, and overall energy savings in all sectors. It aims to safeguard supply to households and essential users like hospitals, but also industries that are decisive for the provision of essential products and services to the economy, and for EU supply chains and competitiveness. The Plan provides guidelines for Member States to take into account when planning curtailment.

Energy saved in summer is energy available for winter

By substituting gas with other fuels and saving energy this summer, more gas can be stored for winter. Acting now will reduce the negative GDP impact, by avoiding unplanned actions in a crisis situation later. Early steps also spread out the efforts over time, ease market concerns and price volatility, and allow for a better design of targeted, cost-effective measures protecting industry.

The Gas Demand Reduction Plan proposed by the Commission is based on consultations with Member States and industry. A wide range of measures are available to reduce gas demand. Before considering curtailments, Member States should exhaust all fuel substitution possibilities, non-mandatory savings schemes and alternative energy sources. Where possible, priority should be given to switching to renewables or cleaner, less carbon-intensive or polluting options. However, switching to coal, oil or nuclear may be necessary as a temporary measure, as long as it avoids long term carbon lock-in. Market-based measures can mitigate the risks to society and the economy. For example, Member States could launch auction or tender systems to incentivise energy reduction by industry. Member States may offer support in line with the amendment of the State aid Temporary Crisis Framework, adopted by the Commission today.

Another important pillar of energy saving is the reduction of heating and cooling. The Commission urges all Member States to launch public awareness campaigns to promote the reduction of heating and cooling on a broad scale, and to implement the EU ‘Save Energy Communication’, containing numerous options for short-term savings. To set an example, Member States could mandate a targeted lowering of heating and cooling in buildings operated by public authorities.

The Demand Reduction Plan will also help Member States identify and prioritise, within their “non-protected” consumer groups, the most critical customers or installations based on overall economic considerations and the following criteria:

  • Societal criticality – sectors including health, food, safety, security, refineries and defence, as well as the provision of environmental services;
  • Cross-border supply chains – sectors or industries providing goods and services critical to the smooth functioning of EU supply chains;
  • Damage to installations – to avoid that they could not resume production without significant delays, repairs, regulatory approval and costs;
  • Gas reduction possibilities and product/component substitution – the extent to which industries can switch to imported components/products and the extent to which demand for products or components may be met through imports.
Background: What the EU has done to secure its energy supply

Following the Russian invasion of Ukraine, the Commission adopted the REPowerEU Plan to end the EU’s dependence on Russian fossil fuels as soon as possible. REPowerEU sets out measures on diversification of energy suppliers, energy savings and energy efficiency, and an accelerated roll-out of renewable energy. The EU has also adopted new legislation requiring EU underground gas storage to be filled to 80% of capacity by 1 November 2022 to ensure supply for the coming winter. In this context, the Commission has carried out an in-depth review of national preparedness plans to face possible major supply disruptions.

The Commission has set up the EU Energy Platform to aggregate energy demand at the regional level and facilitate future joint purchasing of both gas and green hydrogen, to ensure the best use of infrastructure so that gas flows to where it is most needed, and to reach out to international supply partners. Five regional groups of Member States have already been initiated within the Platform, and a dedicated task force has been created within the Commission to support the process. The EU is succeeding in diversifying away from Russian gas imports thanks to higher LNG and pipeline imports from other suppliers. In the first half of 2022, non-Russian LNG imports rose by 21 billion cubic metres (bcm) as compared to the same period last year. Non-Russian pipeline imports also grew by 14 bcm from Norway, Azerbaijan, the United Kingdom and North Africa.

Since long before the Russian invasion of Ukraine, the EU has been building a clean and interconnected energy system, focused on increasing the share of domestically-produced renewable energy, phasing out imported fossil fuels, and ensuring connections and solidarity between Member States in the event of any supply interruptions.

By progressively eliminating our dependence on fossil fuel sources and by reducing the EU’s overall energy consumption through increased energy efficiency, the European Green Deal and Fit for 55 package strengthen the EU’s security of supply. Building upon these proposals, REPowerEU aims to accelerate the instalment of renewable energy across the EU and the deployment of energy efficiency investments. Over 20% of the EU’s energy currently comes from renewables, and the Commission has proposed to more than double this to at least 45% by 2030. Since the beginning of the year an estimated additional 20 GW of renewable energy capacity have been added. This is the equivalent of more than 4 bcm of natural gas.

Through our investments in LNG terminals and gas interconnectors, every Member State can now receive gas supplies from at least two sources, and reverse flows are possible between neighbours. Under the Gas Security of Supply Regulation, Member States must have in place national preventive action plans and emergency plans, and a solidarity mechanism guarantees supply to ‘protected customers’ in neighbouring countries in a severe emergency.

For More Information

Memo Q&A

Communication

Annex

Regulation

State aid Temporary Crisis Framework

Factsheet: Save gas for a safe winter

Factsheet: A European Gas Demand Reduction Plan

Factsheet: Supporting cities to save energy

Source – EU Commission

Q&A – ”Save Gas for a Safe Winter”

 

Brussels, 20 July 2022

1. What does the EU ”Save gas for a safe winter” Plan contain?

The Plan sets out how the EU can tackle potential further disruptions in gas supplies from Russia in a coordinated manner, in view of the upcoming winter seasons. The Communication “Save gas for a safe winter” outlines the market situation, the instruments available under existing EU legislation on the security of gas supplies and the measures taken so far. Against the backdrop of tight market conditions and Russia’s continued weaponisation of gas supplies, it identifies a likely gap between supply and demand in case of a full disruption from Russia.

The Plan therefore proposes a voluntary gas demand reduction target of 15% from 1 August 2022 to 31 March 2023. To reach that target, it outlines various measures whereby Member States can encourage the decrease of gas demand and consumption by the public sector, businesses, as well as households. By the end of September, Member States are required to update their existing national emergency plans with their planned demand-reduction measures to meet this target. The Annex on demand reduction details policy measures available to incentivise fuel switching and the decrease of gas consumption. It also puts forward criteria for Member States to identify critical non-protected consumers should curtailment be necessary.

In addition, the plan is underpinned by a legislative proposal introducing a new EU emergency tool to address a potential gap between supply and demand in the European gas market. The proposed Regulation, based on Article 122 of the EU Treaty, introduces a process to declare, after consulting the Council, an EU alert if voluntary demand-reduction targets are not sufficient to prevent this gap. In case of such a situation, the Commission is empowered to activate a binding demand reduction target.

2. Why does the Plan include a new EU legal tool on gas demand reduction and what does it entail?

In its meetings on 31 May and 23 June 2022, the European Council requested the Commission to make proposals for improving preparedness for possible major supply disruption as a matter of urgency with a view to securing energy supply at affordable prices. The recent escalation of disruptions of gas supply from Russia points to a significant risk that a complete and protracted halt of Russian gas supplies may materialise in an abrupt and unilateral way. Immediate proactive and coordinated action at EU level can avoid serious harm to the economy and citizens resulting from a possible gas supply interruption. The existing Security of Supply Regulation (Regulation (EU) 2017/1938) is insufficiently equipped to deal with such a widespread, protracted disruption of gas supply to the detriment of European industry and consumers as it was designed for short-term and geographically limited disruptions. The proposed Council Regulation makes up for the missing legal framework. As all Council Regulations, it requires a qualified voting majority in the Council of the EU to enter into force.

Under the proposed Council Regulation, Member States would make every effort to reduce their national gas consumption between 1 August 2022 and 31 March 2023 by at least 15% compared to their average consumption in the same period during the five preceding years. They should build on the measures and criteria set out in European Gas Demand Reduction.

With the new legal tool, the Commission can also declare a Union alert, either at its own initiative or following a request by at least 3 Member States. This alert occurs when there is a substantial risk of a severe gas shortage or an exceptionally high demand of gas occurs, which results in a significant deterioration of the gas supply situation, but where the market is still able to manage that disruption. The Union alert would allow for a mandatory demand reduction target to be introduced.

Today’s proposal stipulates that by end-September 2022, Member States are required to update their national emergency plans, setting out the demand reduction measures they are planning, for example to implement fuel switching in industry and the power sector and limit the temperature in public buildings. To ensure coordination, they must consult the Commission and relevant stakeholders before introducing new demand reduction measures.

National authorities will be responsible for monitoring the implementation of demand-reduction measures on their territory and report to the Commission the achieved reduction every two months, not later than by the 15th of the following month.

The Commission, assisted by the Gas Coordination Group (consisting of Commission, Member States representatives as well as the European Network of Transmission System Operators for Gas, ENTSO-G), will be monitoring and enforcing such reductions closely, including by requesting additional measures to reach the mandatory reduction in case the submitted national plans are not deemed sufficient, or solidarity supplies are invoked by a Member State. In case of requests for solidarity supplies, the Commission will also require that Member States demonstrate that all appropriate gas demand reduction measures have been implemented domestically.

The Council Regulation should apply for a period of two years from its entry into force, but a review in view of the general EU gas supply situation is foreseen by August 2023 at the latest.

3. Who is the Commission proposing gas reduction measures for?

Existing EU security of supply rules guarantee that “protected customers”, namely households and essential social services such as hospitals and schools, are exempt from any gas rationing measure.

For this reason, the outlined measures are focused on industry. However, everyone can contribute to saving gas. Managed energy savings in all sectors of the economy today will be much less costly than rushed curtailment of industrial production tomorrow. We therefore encourage Member States to launch information campaigns to raise awareness among citizens and take measures to reduce heating, for instance, in public buildings and to reduce the gas consumed by non-critical power plants. It is up to each Member State to decide how best to apply demand reduction. However, Member States shall take into account the common set of prioritisation criteria and principles outlined in the Demand Reduction Plan in order to manage potential shortages in an economically efficient and solidarity-based manner.

The Commission is continuously working on the supply side by reaching out to alternative suppliers to secure additional deliveries. However, this will be insufficient in case of a major disruption. The Plan thus aims to ensure that gas supply matches demand over the winter. It also sets out common criteria to design national measures in case a gap emerges and curtailment becomes necessary.

4. Will industry need to reduce its activities?

The EU is doing all it can to prevent a reduction in industrial activity, but decreased industrial activity can’t be excluded in the face of security of supply threats. This is also why priority should be given to preventive gas-demand savings. In this spirit, the Demand Reduction Plan provides a set of common principles and criteria for the Member States to minimise the impact of significant gas disruptions on industries, especially those that have little room to switch away from gas or to reduce production without heavy damage. The guidance aims to guarantee coordination and solidarity between Member States, in order to reduce the potential adverse impacts of disruptions on the economy, industrial competitiveness and employment. It helps identifying the industrial sectors which across the Single Market are key to the smooth functioning of society and value chains.

Member States should prioritise measures encouraging the switching or substitution of natural gas with other fuels, preferably towards cleaner alternatives and renewable energy sources. It is essential that Member States consult stakeholders to ensure that all substitution possibilities and all existing alternative energy sources are prioritised and exhausted, before considering mandatory demand reduction. Gas flow restrictions, rationing, and curtailment would only have to be taken as a last resort, when all other options have been exhausted.

5. What exact measures and criteria are Member States advised to put in place to reduce gas demand?

The Gas Demand Reduction Plan encourages Member States to first target those sectors with better substitution possibilities, and to share the burden across the economy, building on the existing national emergency plans and best practices.  It underlines the potential savings from reduced demand for heating and cooling – for example through information campaigns or by limiting heating and cooling, especially in large buildings, and avoiding outdoor terrace heating.

Given the large amount of gas used to generate electricity, the Plan notes the potential to switch to other fuels to generate electricity. Market-based instruments, such as auctions or tender systems – including at cross-border level – or the use of “interruptible contracts” are other measures Member States could put in place to reduce demand. The Plan also points to the concept of swapping contracts between large customers, where a large energy-intensive company in a region facing a supply shortage temporarily swaps production to a region which is less affected.

In case demand reduction for non-protected customers becomes a necessity, Member States should take into account a set of criteria, such as the criticality of societal services and cross-border value chains, practical considerations such as fuel substitution and gas consumption reduction possibilities, and potential damage to installations due to halted or postponed activity. When designing curtailment measures, broader economic considerations such as the importance of a specific sector in a value chain should also be taken into account. Member States should build on these guidelines when updating their national gas security of supply emergency plans.

6. How will this Plan preserve the internal energy market?

This plan will strengthen the EU energy market and internal market by enhancing coordination and cooperation between Member States to optimise the distribution of gas to where it is most needed. The Commission will remain vigilant to protect the Single Market, in particular to prevent any undue restriction of trade between Member States.

The existing Gas Coordination Group (consisting of Commission, Member States representatives as well as the European Network of Transmission System Operators for Gas, ENTSO-G) can meet whenever necessary including with representatives of the industry ministries It will play a critical role in monitoring the impact of demand reduction on critical sectors and value chains across the EU, and enabling the necessary exchange of information, associating other relevant stakeholders, social partners and policy fora where appropriate.

7. How will solidarity among the Member States be ensured?

The Plan hinges on the principle of solidarity. Each Member State will have to reduce its national gas consumption to contribute to address a gap between supply and demand in the EU, irrespective of where that gap emerges or is the worst. Measures will be designed at the national level.

In a situation of emergency, effective and prompt solidarity would be greatly facilitated by having bilateral solidarity agreements foreseen under the Regulation on gas security of supply in place, clarifying the technical, legal and financial arrangements to provide gas to the legally protected customers of neighbouring countries in case of crisis. All Member States who have not done so yet should finalise the preparation of the necessary solidarity agreements as fast as possible.

Furthermore, the Guidelines encourage Member States to cooperate when designing prioritisation criteria for curtailment. The Gas Coordination Group, the High-Level Working Group on Competitiveness and Growth of the Council and the EU Industrial Forum could all serve as fora for consultation and coordination.

8. Is the EU proposing gas rationing for private households?

No, private households fall within the definition of “protected customers” under the existing EU security of supply regulation. They would be the last to be affected by shortages and in absence of other unforeseen events, they would not be impacted directly by large scale disruptions from Russia.

Households play a very important role in the months ahead if reducing unnecessary consumption and avoiding waste of energy. Saving gas would not only help reducing the pressure to save elsewhere in the economy, it would also lower the cost of energy bills. Households across the EU are therefore encouraged to contribute to this societal energy-saving exercise by, for example lowering their heating or cooling, air drying laundry, switching off unnecessary lights, and improving home insulation where possible. Individual steps, when taken together, add up to significant savings: a lower thermostat temperature for heating alone can save up to 10 bcm of gas per year.

9. Will this Plan have an impact on prices and will you impose a price cap on gas?

Due to the geopolitical and market situation, we expect gas prices to remain high, but a reduction in consumption might have a positive impact due to decreasing demand. We still encourage the Member States to continue using our Energy Prices Toolbox setting out the measures to cushion the impact of sustained prices on businesses and households.

The European Council has tasked the Commission to study a price cap on imported gas. That work is ongoing. We are looking into different models and ways in which a price cap could work in a situation of gas disruption or emergency situations. The Commission has so far not proposed a price cap and today’s plan does not contain proposals in this regard.

10. What has the Commission done to ensure security of EU gas supply?

Over the past months and years, the Commission has taken a range of measures to ensure secure gas supplies, building on the general progress made in security of gas supply legislation as well as infrastructure allowing for diversification.

After the last gas crisis in 2009 and Russia’s annexation of Crimea and Sevastopol, the EU has put in place a framework to address security of gas supply risks and mitigate disruptions. The EU has significantly improved gas interconnections to deliver gas to where it is needed, allowing reverse flows and strengthening our LNG import capacity.Every Member State now has more than one source of gas supply.

The Commission has also carried out an in-depth review all the national gas security of supply emergency plans, as well as in-depth monitoring of the security of supply situation and risk assessment.

As risks of disruptions became more apparent with Russia’s invasion of Ukraine, the Commission tabled a proposal in March requiring the refilling of gas storage facilities before the winter (80% by 1 November 2022). Swiftly agreed by the European Parliament and Council of the EU, the rules are now in force.

After presenting an  outline in March, the Commission came forward with the REPowerEU Plan in May to wean the EU away from imports of Russian fossil fuels. The plan is centered onaccelerating the rollout of renewable energy, frontloading investment in energy efficiency, and diversifying our energy sources and suppliers.

The Commission established with the Member States the EU Energy Platform to coordinate action on energy supplies, with a view to joint purchasing in the future. Through the platform, additional gas supplies to the EU have already been secured for the coming years, either LNG or via pipeline, thanks to deals with the US, Egypt and Israel, and Azerbaijan. The Commission is continuously working on the supply side by reaching out to alternative suppliers to secure additional deliveries.

For more information

Press Release – Save Gas for a Safe Winter

Factsheet –  Save gas for a safe winter

Factsheet – A European Gas Demand Reduction Plan

Factsheet-Supporting cities to save energy

Source – EU Commission

President von der Leyen on the ‘Save gas for a safe winter’ Package

 

Brussels, 20 July 2022

We want to debrief together, from this College meeting, on the decisions we have taken, mostly the focus on gas demand. We know that today the start of the Russian war of aggression against Ukraine is at day 147. But if we look in hindsight, we see that, months before the war broke out, Russia kept gas supply intentionally as low as possible, despite the high gas prices – we have discussed it here in this room many times. We have seen that Gazprom had not the slightest interest to rebalance the market. On the contrary, it kept its storage levels as low as possible, and the supplies too, and therefore reducing the supply, tightening the market and driving up the prices.

What do we see today? Today, we have 12 Member States that are hit by a partial or total cut-off of Russian gas supply. And overall, the flow of Russian gas is now less than one-third of what it used to be, for example, at the same time last year. Russia is blackmailing us. Russia is using energy as a weapon. Therefore, in any event, whether it is a partial or a major cut-off of Russian gas, or a total cut-off of Russian gas, Europe needs to be ready. We do not start from scratch and that is good – we have already done a lot to reduce our dependency on Russian fossil fuels overall. We have set up a joint gas storage. The storages are now filled at 64%. We set up an EU Energy Platform for joint purchase. We have proposed our REPowerEU plan. And you know that it is two pillars: The first one is on supply; increase the supply from other trustworthy sources than the Russian one. And the second pillar is on reducing the demand on gas overall.

On the first pillar: The gas supply from other sources than Russia have quite impressively increased since January this year by 35 bcm by now. You remember that we had the US agreement on increased supplies on LNG. Norway stepped up considerably. Qatar, the Gulf States, Algeria. I was with Kadri [Simson] in Egypt to sign a MoU on more supplies. We were two days ago in Azerbaijan to sign a MoU on increased supplies.

And we have worked a lot on increased supplies through renewable energy. This is the energy of the future; this is the energy we need. Besides the fact that it is clean energy, it is home-grown and makes us independent. And there, we have also good news. Because since the beginning of this year, we have an estimated additional 20 gigawatts of renewable energy capacity. If you put that as an equivalent to gas, it is round about 4 bcm replaced by renewables by now.

Today, we want to focus on the demand side, the energy saving. And here too, we do not start from scratch. The Member States are already doing a lot. What is the state of play right now? We have right now 11 Member States that have triggered an early warning, what their gas supply is concerned, and one Member State has even triggered an alert. But we also know that we have to prepare for more, the preparation is not enough. We have to address – and this is for the first time – our energy security at a European level. We have to be proactive; we have to prepare for a potential full disruption of Russian gas. This is a likely scenario, with what we have seen in the past. As we know, Russia is calculatingly trying to put pressure on us by reducing the supply of gas. So it is a likely scenario that there is a full cut-off of Russian gas. And that would hit the whole European Union. A gas crisis in the EU’s Single Market – our economic powerhouse – will affect every single Member State in our European Union.

Now, we have learnt our lesson from the pandemic. We know that in such a crisis, our worst enemy is fragmentation. And if we act in unity, we can address any crisis. We are much, much stronger than the sum of 27 Member States only. And we know that a lot is at stake: the well-being of our citizens, the jobs, our economy. So if we can act in unity, we can master the difficulties. What is the proposal? To make it through the winter, assuming that there is a full disruption of Russian gas, we need to save gas to fill our gas storages faster. And to do so, we have to reduce our gas consumption. I know that this is a big ask for the whole of the European Union, but it is necessary to protect us.

This is why today we propose an emergency instrument on the basis of Article 122. We have two objectives. One is: Every Member State should reduce the use of gas. And our second objective is: We provide a safety net for all Member States. On the reduction of gas use: In case that we have a situation that deteriorates, like a full disruption of Russian gas, we trigger an EU alert overall for the European Union. We are asking the Member States to reduce the gas consumption by 15%. Why 15%? This is the equivalent of 45 bcm of gas. With such a reduction, we can make it safely through this winter in case of a complete disruption of Russian gas. This is calculated under certain assumptions. But this would bring us, if we save 15% to the storage, safely through the winter. And the motto is: The quicker we act, the more we save, the safer we are.

On our second objective, solidarity. There are some Member States that are more directly exposed than others to Russian gas, and they are, of course, more vulnerable than others to disruption. But all Member States will suffer the consequences of such a disruption through the Single Market. So this is why it is important that all Member States now contribute in the saving, the storing and are ready to share gas with the other neighbours in case of need. Energy solidarity is a core principle of our Treaty. We already have the Security of Supply Regulation that foresees that Member States can count on each other. And we are building on that the emergency instrument that we present today.

I know that these are testing times. But we also know, by experience now and with the crisis that we have gone through, that testing times require that we are well organised, well coordinated on a European level, that we show strong unity and that we show solidarity. These are the three ingredients that make us strong and make it possible to go through any kind of crisis. We have managed the pandemic; we have managed the vaccination in that way; we have managed to create NextGenerationEU. We have used this unity, this European coordination and this solidarity when facing Russia’s war. We have gone through applying six packages of sanctions. The seventh is underway. So if we look at the European Union today, I am confident that we can master this Russian-engineered energy crisis by staying together.

Thank you.

Source – EU Commission

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