European energy reserves should rely further on gas - OIES

Europe’s strategic energy reserves should not be all reliant on crude oil, as the world’s energy transition is heading for the cleanest fossil fuel, according to a recent report.

“With gas becoming more important than oil, it would therefore make absolutely no sense to close European gas storage capacity while continuing to have large strategic oil stocks that are very seldom used,” Oxford Institute for Energy Studies (OIES) senior research fellow Thierry Bros said in a quarterly report on Tuesday.

“If in 1974 oil stocks were needed due to the oil intensity of the EU economy, this is much less the case today,” Bros said.

Strategic crude inventories were developed in the 1970s as a countermeasure for the impact of supply disruptions, the report found.

Although oil stockpiles are now accounting for 38% of the European Union’s (EU) energy mix, down from 50%, they are still essential, it added.

However, amid expected extreme weather patterns, and as the world is heading further for electric energy, the natural gas usage has become more significant as power sources in the EU, Bros stated.

Gas storage sites are being shut down because of high costs and low profits, even when the fossil fuel’s share jumped to 24%.

Before proceeding with closing about 10% of gas inventories, the EU should find alternative mechanisms that could be of higher profitability and secure energy supply.

For instance, the actual strategic obligations on crude and refined products could be turned into an energy storage commitment, facilitating all of the oil supplies to come up with the less expensive means to meet the energy storage buffer, Bros suggested.

Another alternative mechanism could be considering military purposes for crude storage away from civilian energy storage, with obligations to prevent blackouts, according to the report.

As liquefied natural gas (LNG) trade expands with the possibility of the rising count of carriers on the water to be used as floating storage, European gas stockpiles could also serve a global purpose, Bros added.

“If LNG is reloaded away from EU tanks to higher priced markets, EU storage will be called more to balance the domestic supply-demand balance,” he said, stating that “before China manages to build its storage capacity the European gas industry could provide this service to China.”