German gas experts sceptical of new emergency mechanism

German natural gas market experts are criticising the product design and effectiveness of a new emergency balancing tool.

The new tool will require industrial low-calorific gas (L-gas) consumers to volunteer to cut consumption by at least 10MWh during each remaining hour of the current gas day if balancing a short grid is not possible through other means.

The tool is called demand-side management and will be applied from December.

The German Federal Ministry for Economic Affairs and Energy (BMWi) asked GASPOOL to introduce the mechanism, but the area manager and its market participants are sceptical over whether it will work.

Doubts

In the GASPOOL and NCG regions, demand-side management would only apply to L-gas which is mainly used in northern and eastern Germany. This leaves the tool ineffective if supply from Germany’s biggest suppliers was to be cut.

“The demand-side management tool is not covering all of Germany but only very specific bottlenecks, mostly in the L-gas region. If the H-gas region doesn’t have this back-up mechanism, problems will arise if we ever have a cut in H-gas from Russia or Norway,” said Valentin Hoehn, rapporteur at the International Federation of Industrial Energy Consumers.

A German-wide solution would also have been more effective in times of regional crisis, he said.

“Covering all of Germany would have been the more elegant version. That way we could have integrated our emergency backup into the EU’s security of supply regulation that is currently being reworked. In case of an emergency we would have a lot of communication layers that might delay supply solidarity with a neighbouring country in its current version.”

Another shortcoming of the tool is its design, said Sebastian Kemper, head of legal and regulatory affairs at GASPOOL.

The industrials who volunteer under the mechanism guarantee that at the beginning of each gas day, at least 10MWh/h should be available for cutting. This would force industrials to ramp up consumption at night, only to have it reduced at the start of the new gas day, Kemper said.

Industrials might also be scared off by the prospect of having to potentially cut consumption for an entire month. Offering a specific number of days during a month would have been better, market participants said.

“The only reason demand-side management is offered for an entire month is to make it comparable to long-term options and squeeze both products unnaturally into the same framework,” Hoehn said. A long-term option means shippers can vouch to supply the grid with storage in case of an emergency.

The tender will be open from 1 September to 22 September. Kemper expected responses to be in the “single-digit” region. Other market participants were less optimistic. marcello.kolax@icis.com