EU muscles into gas market with joint buyers' club

Business Wednesday 15/March/2023 17:34 PM
By: DW
EU muscles into gas market with joint buyers' club
Photo: DW

Berlin: Shoppers have long bought in bulk. It is a way to stock up and save money. Now the EU is using this simple idea and working together to purchase much-needed natural gas for the continent. It hopes the ambitious move will help it make up for the loss of Russian gas and guarantee a new stable supply while keeping energy prices down. It is an unprecedented step for the EU and its latest attempt at more energy security.

To implement this strategy, the European Commission created an IT platform called EU Energy Platform that facilitates purchases of joint gas, liquefied natural gas (LNG) and hydrogen across the continent. The idea for a common purchasing mechanism was established shortly after the invasion of Ukraine in April 2022 and covers the bloc's 27 countries plus three neighbouring countries.

Following a steering board meeting of the platform earlier this month, EU Commission Vice-President Maros Sefcovic told reporters that 22 member states so far have expressed their preliminary interest in aggregating a gas demand equaling more than 17 billion cubic metres of gas over the next three years.
"I encouraged the remaining five member states to notify their volumes as soon as possible," he said, adding that service provider PRISMA will go live with its AggregateEU tool on March 15. "The service provider will help us implement demand aggregation as a first step towards the joint purchase of gas," he said. Companies may then voluntarily conclude purchase contracts with suppliers "either individually or jointly."

How will the Energy Platform work?
Luckily for the EU, a number of new or retrofitted gas pipelines have already started transporting gas or will start soon. Additionally, new LNG terminals are being built along the continent's coasts. Energy experts fear, though, that significant additional supplies will not reach the market until 2024. That means what is available will be fought for, possibly turning European allies into competitors for supplies.
The platform's website announces it "will play a key role in pooling demand, coordinating infrastructure use, negotiating with international partners and preparing for joint gas and hydrogen purchases."    

To give the platform more weight, EU countries are required to pool at least 15 per cent of their gas reserve obligations. So a minimum amount of business is guaranteed. Then the procurement platform will match sellers and buyers. By pooling demand and leveraging the bloc's big purchasing power, the EU hopes to get the best prices and keep supplies flowing. The increased transparency should especially benefit smaller landlocked countries that could otherwise be left behind.

"The coordination mechanism will ensure a better pricing mechanism because all the demand will be taken into consideration to establish the total volume for tender and matched to the supply," said Anna Grosman, a reader in innovation and entrepreneurship at Loughborough University London. To better meet local gas needs, smaller regional groups within Europe will have their own additional coordination mechanisms, she told DW.

Besides meeting the gas needs of entire countries, the platform will also be open to businesses like big industrial gas users in the steel, aluminium, ceramics, glass and vehicle production industries. They can buy gas individually or through larger consortia groups to keep their factories going.

Competition and EU gas market
To keep things efficient, the EU will implement a central buyer scheme, "under which one gas company will negotiate, on behalf of smaller gas companies and gas consumers, a contract with suppliers for the aggregated demand," said Maros Sefcovic. "We aim to have a number of central buyers, representing different groups of companies, to encourage competition, to the ultimate benefit of European consumers."

The EU is one of the biggest gas consumers in the world. The platform is supposed to help it better leverage its current gas infrastructure more efficiently. It will also assist in the coordination of LNG imports, gas storage and building up more infrastructure.

In the runup to this past winter, many feared that a few cold months could deplete Europe's gas reserves. But it was a mild winter and between August 2022 and January 2023, the EU reduced gas consumption by over 19 per cent, according to figures from Eurostat that compared average consumption for the same months between 2017 and 2022.

Now that Europe has made it through its first winter after the invasion of Ukraine with its reserves quite full, attention is focusing on the future. For the EU the most immediate concern is topping up reserves for winter 2023-2024.

Buying in bulk for energy solidarity
Despite dampened demand in 2022 and current high reserves, the numbers are staggering. Last year baseline demand for gas in the EU came in at 360 billion cubic meters. This year the International Energy Agency sees the need for around 395 billion cubic meters of gas, nearly as much as in 2021.
Yet in the end, Anna Grosman doesn't think the platform will guarantee supply. What it will do is improve the price and options for buyers. "But this depends on how well the governance mechanism would function, and whether some members end up having more power than others," she said. The industry, not private consumers will likely profit the most from the joint gas purchasing project.

So far, over 50 companies from around the globe have shown interest in using the platform according to Maros Sefcovic. A lot hangs in the balance. If Europe wants to stay warm and keep its businesses competitive industrial-sized solutions are needed, and the EU has to deliver what it promises.