Reflection on the Baumgarten Gas Explosion: Markets are Working

On the morning of 12 December (9:00 CET), an explosion at the major European gas hub at Baumgarten in Austria forced the operator to close the gas facility. Italian gas prices surged as a result to 80€/MWh or 27$/MMBtu and Italy declared a state of emergency regarding energy supplies. Flows restarted later the same evening (24:00 CET) and Month-Ahead prices returned to close to their pre- blast level (c. 8$/MMBtu) on 13 December. In recent years, gas markets have also been impacted by other such unexpected events including the Fukushima disaster in 2011, the US Polar Vortex in 2014, the Groningen cap reduction and some tightness in Southern Europe in 2017 leading to some policy “declarations”. But in fact, gas markets are mature and liquid enough to have mitigated such issues without any state intervention: the recent Italian position was, again, simply a “declaration” as the security of the Italian system is guaranteed by storage facilities. What the emergency declaration shows though, is that whilst the gas industry is resilient and markets do work, implementation of the existing regulation is needed.

 

By: Thierry Bros

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