Regulatory schizophrenia
HOT TAKE: EU mulls relaxation of gas refilling targets, as industry rejects THE’s restocking subsidy folly. But price cap revival muddies waters.
The European Union’s regulatory machinery, ever-slow to course correct, may finally be lurching towards something resembling sense.
EU member states and industry lobbyists will meet this morning at the Gas Coordination Group in Brussels to discuss the possible relaxation of the EU’s 2025 gas storage refilling targets.
Pressure is mounting to ease the rigid requirement to replenish the EU’s fast-depleting underground gas storage facilities to 90% by 1 November 2025.
The move comes after a group led by Germany, Italy, and the Netherlands pushed back against EU plans to renew the restocking targets for 2026.
After two years of clinging to rigid targets, Brussels is belatedly waking up to the problem its well-intentioned regulation created.
The policy served as a neon sign to speculators to open aggressively bullish long positions in the summer refilling season. The effect was the inversion of the summer-winter spread, rendering gas storage uneconomic and the targets impossible to achieve without massive subsidies.
With front-month TTF flirting with €60/MWh earlier this week, the cost of achieving the 90% target is currently estimated at roughly €36 billion. That’s an increase of €2 billion in barely three weeks.
Investment funds are betting heavily that EU member states will cough up. They have amassed 292 TWh of net length in TTF gas futures with a nominal value of almost €16 billion, according to the latest Commitment of Traders report from ICE Endex and calculations by Energy Flux.
The trade is as transparent as it is cynical: capitalise on the EU’s predictable, self-imposed desperation to refill underground gas storage caverns at any cost, and repatriate the easy winnings to overseas clients. When policy makes it this easy, who is really to blame?
Timing is everything
Having essentially created this problem, policymakers hold all the cards. Now, with tentative signs that the bloc might be inching toward dismantling this obvious folly, timing will be everything. Here’s why, and what to look out for.