European Union joint gas purchases: a real success for Member States

Energy - August 23, 2023

The EU’s joint gas purchasing platform could become a permanent instrument, given the success of the measure, which Brussels originally intended to be temporary. The first auctions on the platform, which brought together supply and demand under Brussels mediation, were hailed by European Commission officials as a success and achieved their main goal of lowering gas prices in the crisis following Russia’s invasion of Ukraine. The EU Aggregate Mechanism was introduced to supplement the need for gas imported from the Russian Federation, which arose with the sanctions imposed.

Russian natural gas excluded from participation in European Commission tenders

The European Union wants to make joint gas purchases (an activity that has proved successful so far) – a crisis measure designed to prevent member states from outbidding each other to secure gas supplies – a permanent feature of the bloc’s post-Russia energy strategy, Bloomberg communicates in a report picked up by Agerpres. The European Commission is proposing to extend the initiative next year to include the purchase of hydrogen and decarbonised gases such as biomethane, according to a document seen by Bloomberg News. The initiative could also include other energy commodities or services, such as carbon capture and storage.

Participation of EU Member States in the joint procurement platform would remain voluntary, unless there is a new energy crisis. In such a situation, the EU bloc could decide to make demand aggregation mandatory. However, Russian natural gas would continue to be excluded from participation in tenders organised by the European Commission.

“This exclusion is motivated by the war started by Russia and the use of energy as a weapon, and the objective is to diversify beyond Russian fossil fuels,” the European Union document says.

The proposal comes as Brussels officials believe the crisis measure to avoid last year’s high energy price hikes has been successful and provides a model for future cooperation.  The two joint gas auctions held so far have succeeded in bringing buyers and sellers together for a total of 23 billion cubic metres of gas, equivalent to 15% of the supplies that came from Russia each year before the war in Ukraine.

European Commission Vice-President Maros Sefcovic said the platform could also be used to purchase hydrogen and also be a model for the purchase of rare minerals needed for green technologies. The proposal would be included in the forthcoming decarbonisation package for the hydrogen and gas markets, which is currently being negotiated by member states and the European Parliament, Bloomberg said in the document.  Companies would be required to disclose certain information after negotiations through the platform, but would only have to disclose the volume, duration and counterparties in any agreement.  The price paid for gas delivered would not be made public. 

The European Commission launched the first international tender to buy gas through the EU’s joint procurement mechanism in May, targeting a total volume of 11.6 billion cubic metres of gas.  Around 107 companies had signed up at that time to participate in joint gas procurement through the AggregateEU mechanism. For the first joint gas procurement tender, 77 companies registered in the European Community applied for a total volume of around 11.6 billion cubic metres of gas. Of these, demand for LNG (liquefied natural gas) accounted for around 2.8 billion cubic metres, while almost 9.6 billion cubic metres were requested for pipeline delivery, according to the European Commission. This first round of tendering and subsequent contracts, cover gas deliveries from June 2023 to May 2024. 

European Union states last year committed to participate in aggregating demand for at least 15% of their national gas storage targets, representing about 13.5 billion cubic metres of gas per year. The targets for gas storage and gas pooling were agreed in 2022 as emergency measures “in response to Russia’s use of energy as a weapon and the unprecedented rise in energy prices since Russia invaded Ukraine,” according to the commission.  The aim was to reduce price volatility, ensure a secure and predictable supply of energy and leverage Europe’s collective market share.

Ukraine, Moldova and Serbia – interested in accessing the EU energy platform

AggregateEU is the EU mechanism for aggregating gas demand and joint purchasing. It was set up as a central component of the EU Energy Platform to support the bloc’s efforts to move away from Russian gas by replacing it with more reliable and affordable alternatives. The platform is open to companies among the European Union countries and to contracting parties to the Energy Community. Ukraine, the Republic of Moldova and Serbia, countries that are not currently European Union members, have also expressed interest in participating in the European Union energy platform.

The AggregateEU mechanism is designed to match collective European demand with offers from international gas suppliers.   Entities wishing to buy, negotiate with suppliers on contractual terms for the purchase and delivery of gas. The European Commission has no role in the negotiations “I am happy to say that the first contracts have already been signed. I am confident that more agreements will follow, as many contracts are currently being negotiated,” European Commission Vice-President Maros Sefcovic said in May.

“The first round was a remarkable success. It exceeded our expectations. It shows that we were right when we put the demand together, when we used Europe’s collective buying power and worked together to fill our gas storage before next winter,” the Commission Vice-President said.

How does the common platform work?

European companies can register their gas needs on an online platform, after which the total volume of demand is auctioned on the global market.  International gas suppliers, with the exception of Russian companies, have been invited to submit bids. In May, a total of 25 gas suppliers made bids representing a total volume of 13.4 billion cubic metres of gas, exceeding the combined recorded demand of 11.6 billion cubic metres, according to Agerpres.

The European platform brings together sellers and buyers, including companies from the European Union countries and from countries that are part of the European Energy Community, such as Ukraine, Moldova, Albania and the former Yugoslavia. A good pace of gas buying also avoids a speculative and exaggerated price increase, as happened last year after the outbreak of war in Ukraine. The joint purchasing scheme has aggregated the demands of small and medium-sized enterprises in gas-consuming industries. At the same time, traditional international suppliers have been able to diversify their customer base. In these respects, the joint procurement scheme was a win-win situation for both sides, i.e. for the companies that submitted their bids and for those that formed the demand.

As a result of this joint purchasing system, the price of natural gas has fallen considerably this year from last year’s peak. And the joint supply platform has also contributed to the international price drop, say industry analysts. At the end of May, a year and three months after the war began, gas prices plummeted dramatically. At the end of May, gas prices reached pre-war levels. After soaring to €340 mw/h after the outbreak of the war, the price reached €25 mw/h at the end of May, as European countries managed to fill their storage and secure their needs for this winter.

Romania could become Europe’s leader in gas production

Energy Minister Sebastian Burduja recently said he had discussed with his Azerbaijani counterpart the development of the strategic partnership, bilateral investments and joint energy projects, including the green corridor linking the Caspian Sea to the Black Sea.

“Romanians will have secure access to gas, even in the event of a cold season with lower temperatures than last year.  Romanian storage is now over 75.5% full, well above Romania’s commitment to the European Union, and we have almost 700 million cubic metres more in storage compared to the same period in 2022. The cooperation between Romania and Azerbaijan in the field of energy brings important benefits not only to the two countries, but to the security of the whole Europe”, said Sebastian Burduja.