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“The Natural gas infrastructure is sensitive.”
Andree Stracke, Chief Commercial Officer of Gas Supply with RWE Supply & Trading, on sensible structures and prices

In December 2017, an incident in the Austrian town of Baumgarten briefly interrupted the main gas pipeline to Italy. In an interview, Andree Stracke, Managing Director of the Gas Division at RWE Supply and Trading, discussed sensitive structures and sensitive prices, and how a diversified energy mix can help mitigate both.

Mr Stracke, just how sensitive is the infrastructure for natural gas?

Andree Stracke

Natural gas infrastructure is sensitive. In contrast to the electricity grids, gas is often transported over thousands of kilometres, passing through many countries, from the production sites to the point of delivery. There are critical nodes, such as the gas distribution station in Baumgarten. The gas supply for Italy mainly flows through this station, as well as for Slovenia and Croatia. If a station like this is shut down due to bad weather conditions, the supply of gas in these countries can be jeopardised. Another critical aspect is the dependence on a few supplier and transit countries, as was highlighted quite clearly by the supply crises related to transit through Ukraine in 2006 and 2009.

Consequently, countries with a diversified energy mix, such as Germany for example, have a great advantage. While Germany is one of the world’s largest importers of natural gas, it benefits from a highly diversified mix of energy, relying on coal, nuclear power, renewables and natural gas.

Isn’t it possible to bridge gaps with appropriate storage capacities?

Shortfalls can be compensated for using storage capacities. This is done especially when large volumes of gas are needed or if supply is interrupted unexpectedly, as was the case with Baumgarten. That said, gas storage facilities cannot be used to replace the volumes transported through a gas transit pipeline for longer periods of time. Furthermore, some countries have very limited or no storage capacities at all, and in such cases they are dependent on the gas systems of their neighbours.

In the event of gas supply bottlenecks, problems quickly arise on the electricity market, as gas-fired power plants can no longer be supplied. This can be particularly tricky in winter, when gas consumption for heating is high and electricity is also in strong demand. As a result of the accident in Baumgarten, there was an intensive discussion about the economy’s huge dependence on gas imports in Italy.

What about compensation through other countries? And how is cooperation in gas supply regulated in Europe?

There is no uniform security-of-supply regulation, neither at the EU level nor at the national level. Action needs to be taken in this regard. In my opinion, this is the regulatory Achilles’ heel of the natural gas market.

In cases of force majeure, market participants can’t really do much. In such events, grid operators can interrupt the supply to end customers. RWE then cooperates closely with all relevant transmission system operators to support security of supply using its own portfolio of physical gas assets. In the few cases of crisis we’ve seen in recent years this has functioned quite well, which has allowed all of our customers to be supplied reliably. In this regard, frank and constructive communication between all stages of the value chain, i.e. trading markets, storage facilities, transport systems, major customers and gas-fired power plants, was crucial.

What about the price sensitivity of the natural gas system?

That depends on the situation. On the day the explosion occurred in Baumgarten, before the extent of the damage was clear, prices increased quite sharply, especially for short-term deliveries. Prices briefly increased by more than 100 percent.

Prices in Italy rose more than in Austria, the Czech Republic or Germany, as the interruption affected the large transit volumes through Austria to Italy in particular. When it became clear that the damage could be fixed relatively quickly, long-term prices returned to normal levels in just a few days, and shortly thereafter prices for short-term deliveries also normalised again. That would certainly not have been the case if the facility had been out of operation for longer.

The days following the accident were a good illustration of how energy prices respond to supply and demand. And this can vary strongly at the regional level. Nevertheless, it was also clear that the markets are liquid and functional in such cases. We help make this happen!

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