After spending nearly 1 billion euros to replenish domestic natural gas reserves, the Netherlands wants to abolish mandatory gas storage targets. The Dutch side argues that the current EU system forces the government to take on work that should be done by the market.
EU rules require member states to fill gas storage facilities to a fixed level before winter, and the related obligations are mainly based on storage capacity rather than domestic gas consumption. This has left the Netherlands facing excessive storage requirements 鈥?even though the country has a relatively large storage system, its domestic gas demand is steadily shrinking.
Dutch Climate Minister Stientje van Veldhoven said in a letter to parliament on Friday that these rules are also increasingly at odds with market principles. Due to declining consumption and "large-scale purchases by other European governments," the economic benefits of gas storage have been distorted.
Affected by the Middle East conflict, replenishing gas reserves across Europe this year has been particularly difficult. Recently, natural gas prices have risen sharply relative to winter contracts, making summer injection unprofitable. Since the war broke out, European gas contract prices have more than doubled, and earlier this month they reached their highest level since the end of 2022.
As a result, in order to fulfill obligations under EU rules, the Dutch government has had to increasingly subsidize gas storage injections. In this year's injection season alone, the Dutch government has committed nearly 1 billion euros to ensure reserves are replenished.
Currently, Europe's gas storage facilities are 70% full, below the seasonal normal level of 86%. In the Netherlands, the situation is even more severe, with its gas storage facilities just over 56% full.
The Dutch side wants to leave more of the responsibility for ensuring adequate winter supply to the market. Climate Minister van Veldhoven said one option is to require suppliers serving protected customers such as households to hold a certain amount of gas in their storage facilities to meet their supply obligations.
The Dutch side also believes that the current system fails to take into account its role as a regional gas hub. Dutch storage facilities help safeguard the supply security of neighboring countries, but the government cannot charge other EU member states for the cost of keeping these facilities filled.
As the Middle East conflict continues, at the call of the European Commission, the Netherlands has already lowered its gas storage target to ease upward pressure on wholesale prices. In addition, the Dutch government is considering establishing a larger strategic gas reserve as a fallback guarantee against severe supply disruptions.
Currently, the Netherlands' national reserve is about 5 terawatt-hours, but officials are studying options that could expand this buffer to as much as 72 terawatt-hours. Unlike commercial inventories, this gas would be strictly reserved for emergencies and could not be released simply to influence market prices, similar to the regulatory rules for strategic oil reserves.
Although the Netherlands' gas consumption is relatively small, it remains a major European trading hub and has pricing power over the region's gas benchmark price.
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