Managing crises

The Russian-Ukraine gas dispute at the beginning of 2009 became a crucial test for the European gas industry. In some countries, in particular Eastern and South Eastern Europe, the interruption in deliveries had severe effects on private households and industry. The German consumers, by contrast, did not feel the crisis at all. They benefited from the good supply system which the energy companies had built up in the years before to safeguard secure supplies of gas, even in times of crisis.

The German government and the Federal Network Agency both praised the crisis management of the gas supply companies. The Federal Ministry of Economics underlined the high competence of the companies, stating that they had been able to react quickly and comprehensively and procure the volumes of gas required to avoid supply bottlenecks. The Federal Network Agency attested that the German gas industry was also well equipped for any possible crises to come.

At European level, the Russian-Ukraine gas conflict led to new political demands for a uniform crisis strategy. Particularly the case of Ukraine has, however, shown that the supply structures in the individual EU countries are too different for that.

A crisis concept which is appropriate for today's supply situation in Europe should therefore build on three central factors:

• Priority for the market
• Strong companies
• Reliable legal framework

 

Priority for the market

In its Directive on Security of Gas Supply issued in 2004, the EU Commission defined a three-stage approach for managing crises. First of all, each gas company is responsible for providing its market areas with reliable gas supplies. In the event of a supply crisis, the importing companies have agreed to help each other if necessary, also across national borders.

Only in exceptional crises which cannot be managed by the market alone are the individual member states called upon to intervene. Appropriate statutory regulations are then to safeguard the gas supply.

The interruption of gas deliveries over a prolonged period sets stage three of the crisis mechanism into action. Then EU institutions consult on effective remedies - but only when the companies and member states are not able to overcome the supply crisis alone.

An energy policy which relies primarily on the autonomy of the gas supply companies is best suited to the structural differences in the energy industries of the different EU countries. It passed the acid test in the gas crisis at the beginning of 2009.

E.ON has therefore expressly committed itself to open markets governed by competition since only such markets guarantee secure and efficient gas supply.

Strong companies

Safeguarding against future supply risks requires great effort to create a European Gas Transmission Grid. Most of the major supply pipelines in Europe are currently only unidirectional - from the supply source to the particular consumer region. However, it is important to network the different parts of the European infrastructure better with each other so that the gas can also be moved in other directions in the event of a crisis.

Furthermore, the growing globalisation of competition for gas supplies makes high demands on the supply companies. Gas has to be produced under increasingly difficult production conditions and transported over greater and greater distances.

All this causes high costs along the entire value added chain. Only large and high-performance companies have the economic strength to make the high investments required in supply security projects which have to be planned for far in the future.

Size and high-performance do not just refer to the capital resources of the companies. It is also a question of being well networked on the crucial markets. After all, two thirds of the natural gas used today crosses national borders on its way to the consumer. E.ON has a wide European and national network. We have equity interests in many companies in Germany and abroad and therefore have access to the most important key markets.

Reliable legal framework

The  gas business is geared to the long term. Companies that sign supply contracts with producers, lay pipelines and arrange for the gas to be transported to the consumers have to plan and be sustainable for decades ahead.

However, that is not possible without political support. Firstly, in foreign and security policy: after all, global gas trading also affects the relations to producer and transit countries, above all where the energy system is still controlled by the state.

Secondly, the gas industry's responsible commitment to greater supply security can only be successful in the long term if the investment climate is right. Supply security cannot be had for free but requires high investment in the future. The supply companies can only maintain their commitment in the long run if they can work under economic conditions.

Uniform conditions for long-term investments are also the prerequisite for the strategic cooperation of strong companies in an integrated European energy market. They form the basis for the search for joint solutions for the future - and therefore also for greater supply security in a crisis.