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(Bloomberg) — Germany’s gas market manager said it’s in “intensive discussions” with authorities about potential subsidies to refill storage sites as Europe teeters on the edge of another supply crunch.
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Trading Hub Europe GmbH — which is responsible for the smooth functioning of Germany’s gas market — unveiled considerations for a possible subsidy for suppliers last month, prompting intense trader interest. The tool would be used to help build up a buffer in time for next winter but THE has been tight-lipped about details of the plan after speculation over its design prompted sharp price swings.
“There is no decision taken so far,” THE’s Managing Director Torsten Frank said during an interview in Essen. “We are still in talks with the ministry as well as the regulator, and as soon as the product is finalized, we can then have some deeper talks about the question when to launch this product.”
The subsidy discussions highlight the challenge facing Europe – rapidly depleting inventories caused by a colder winter and the further loss of Russian supplies, and an-EU requirement for stockpiles to be at least 90% full by Nov. 1. The prospect of higher demand to refill during the warmer months had already driven up prices for spring and summer, making it unprofitable for traders to inject gas in the hopes of making a profit next winter.
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Maintaining sizable fuel inventories has become crucial for Europe’s energy security since it lost most Russian pipeline flows in 2022, providing a cushion against demand spikes during the heating season.
To incentivize storage refills and meet legally defined targets, THE is discussing granting subsidies to suppliers at times when the seasonal spread is unfavorable. The announcement of the talks in January caused the spread to widen further, as it suggested summer gas would be purchased despite higher prices.
“It is not just because of the THE announcement, there are lots of different influences on the spread,” said Frank. “The spread developed before that.”
He added there is still a possibility that the product won’t be launched. The main message to energy market participants gathering in Essen this week is that there will be “no direct announcements on when the product will be launched,” Frank said.
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