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Europe Plans To Ditch Long-Term Natural Gas Deals

The European Union plans to quit long-term gas supply contracts before 2049. At the same time, it plans to enhance the security of its gas supply, Bloomberg reports, citing a draft document prepared by the union’s executive arm.

The EU has been struggling with insufficient gas supply for four months now, and the situation is not about to change as Russia, its biggest supplier, continues to only supply what it had committed to supply precisely under long-term contracts. This has earned it accusations of using gas as a political weapon and increased the EU’s determination to reduce its reliance on Russian gas.

Normally, long-term contracts for energy supplies are seen as more beneficial for the supplier as it can lock in certain prices for the long term. As the gas crisis in Asia at the start of this year showed, however, that over-reliance on the spot market is not optimal, either. Because of a surge in demand for gas early this year, Asian buyers saw prices on the spot market surge sky-high in what is a very similar situation to the European one right now.

The Asian gas crisis, however, seems to be a lesson that the EU considers not worth learning. Instead, plans include ensuring that the continent has an adequate supply of gas in storage before the start of the winter. To do that, the EC is proposing what it calls a strategic approach, obliging member states to analyze their gas storage levels ahead of time and also identify potential risks related to the security of their gas supply.

Countermeasures to these risks include mandating the companies operating storage facilities to commit to a minimum level of gas to be supplied, and tendering and auctions, according to the Bloomberg report. Ultimately, however, the EC believes the only way to reduce the EU’s vulnerability to gas prices and foreign suppliers is the shift away from fossil fuels in general.

By Irina Slav for Oilprice.com

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