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Russia’s invasion of Ukraine is reviving an old pattern – for the EU to form a powerful cartel of buyers and buy natural gas in bulk.
If this works, the idea would be for the EU to play a key role in global gas markets – and strengthen its geopolitical clout – while reducing its dependence on Russian energy imports.
The framing seems simple. In a 52-word paragraph, EU leaders agreed last week to “work together on the voluntary joint procurement” of gas and other fuels “making optimal use of the collective political and market weight of the European Union and its Member States to mitigate prices in the negotiations”. .”
The model is the bloc’s success in joint procurement of vaccines, “where EU-wide action was crucial to ensure an adequate supply of vaccines for all”, the Commission said in a communication.
But gas is much more problematic than drugs.
There is a reason why past efforts to establish a common gas purchasing system have failed. A cartel of buyers raises potential issues with EU competition law, could see countries fight each other over access to supplies, create potential clashes between energy companies and governments and could blow up the current global gas market.
A cautionary example is nuclear fuel, where past voluntary joint purchasing efforts have failed, said Leigh Hancher, senior adviser in the antitrust and competition law practice at Baker Botts in Brussels.
“From the very beginning, member states, especially France, always opposed it, clipped its wings and made sure it wouldn’t work,” she said. “I really wonder why we think we won’t have these gas supply issues.”
Here are five reasons why an EU gas buyers club will be very difficult to set up.
1. It only works if everyone is in it
Buying power works best if you buy a lot – and at this time it’s unclear what percentage of the block’s gas would fall under the proposed joint procurement program.
Under this programme, the Commission sees itself setting up a procurement platform for interested countries, “aggregating gas orders and balancing supplies” through “bilateral negotiations with the main gas producers”. gas”. Representatives from EU countries would sit on the steering committee of the Brussels-led working group.
But many EU countries are already bound by long-term gas contracts. If the common platform only buys the equivalent of an additional recharge, it is less attractive.
2. Getting the gas is going to take political muscle
The current global gas crisis means producers are commanding record prices for their limited supply – and would need serious sweeteners to consider selling to the EU at lower rates, especially if it means abandoning long-time customers.
“I don’t see any producer giving up profit and traditional supply relationships unless they get a huge political advantage out of it, which the EU probably can’t give, it’s something that only the states can do,” said Brenda Shaffer, senior fellow at the Atlantic Council’s Global Energy Center and professor of energy at the US Naval Postgraduate School.
Georg Zachmann, senior researcher at the Bruegel think tank in Brussels, accepted.
“There is a lot of money at stake, and if the Commission has to sign agreements worth tens of billions of euros with public companies in difficult countries, there are political considerations which could enter into the decision of who to buy from and how much to pay them,” Zachmann said.
But, he added: “We need it. It doesn’t make sense for all these different [national] ministers go to all these different places to offer whatever they can offer in terms of side deals so their companies can get the gas. »
3. It could breach EU competition rules
Grouping together to force prices down could be considered an illegal cartel, depending on who is buying and how much confidential pricing information is shared.
The Commission remained vague on the identity of the official buyer, while French President Emmanuel Macron said: “It is not governments but companies that [would] sign these contracts.
But the fact that the EU is negotiating favorable deals for private or partially state-owned energy companies on a special platform is raising antitrust alarm bells.
“All of these companies that would participate in the buying cartel – or if you’re being nice, the joint buyers club – would be very large in the Member State they come from, most likely government owned, so one question is who decides who joins and what are the membership requirements?” said Kim Talus, professor of energy law at Tulane University in Louisiana and the University of Eastern Finland School of Law .
Hiper agreed. “If you are [French gas firm] Engie, say, and you were in there, you’d be pretty happy, and if you’re BP and you’re not, you’d be less happy,” she said.
The other issue is that to make sure you get a better deal, “you have to share relatively sensitive business information which could lead to tacit collusion because everyone knows everyone’s price, which normally isn’t not disclosed to competitors,” Talus added.
There are ways around this: Companies could share information confidentially with the Commission. EU competition law also allows exemptions, as evidence that the agreement has resulted in a better distribution of goods and a fairer sharing of benefits among consumers.
Joint buying could see companies that normally compete with each other sharing information on consumption levels, prices and market shares. “You’re not supposed to have corporate agreements that involve pricing,” said Lena Sandberg, partner in the antitrust and competition practice group at Gibson, Dunn & Crutcher in Brussels.
4. Splitting the gas will be a headache
EU countries have varying levels of gas dependence on Russia, and not all members have storage facilities or direct access to an import terminal for incoming cargo. by boat.
This creates problems when allocating volumes and taking into account final prices, which will differ once the fees are added for the reliquefaction of LNG cargoes and the payment of transit fees to reach the country of destination by pipeline.
Creating a club that buys, liquefies and transits gas could raise even more antitrust issues, Talus said.
“The main challenge is distributive in nature,” Zachmann said. “Finding a way to ensure that risk sharing is done in a way that is acceptable to all…there are some countries that are more responsible than others for the current situation, and finding a good way out for them letting others pay is not going to fly easily.”
There is also no guarantee that countries holding the gas in storage will send it to a neighbor as promised if they face a cold spell or a supply emergency.
EU countries are notorious for bickering among themselves, and once the moment of international unity around the war in Ukraine fades, those tendencies are sure to return.
Sandberg played future scraps on the gas allowance. “Yes, I get more than you; no, it was not our agreement. Why is Germany a priority? How come Spain can have price caps on gas and at the same time to have access to priority gas? Who decided on this allocation? on new figures or old figures?…I can go on,” she said.
5. It’s already driving up gas prices
The Commission wants the buying cartel to be in place by this summer so the EU can fill its storage ahead of the winter heating season.
But the EU is such a juggernaut in the gas market that every statement from Brussels affects prices. In March, the Commission proposed to oblige countries to fill their storage to 90% by October 1, which sent prices soaring from around €70 per megawatt hour in January to a record high of €210 in early March. . The Commission quickly backed down and said it wanted storage to be 80% full by November 1, causing prices to plummet to €108.
“Just by saying what they wanted to do, they made it harder to actually do it,” said Tom Marzec-Manser, gas analysis manager at ICIS.
This is an example of the unintended consequences of market intervention, and a block of buyers could have similar impacts.
“Market intervention will continue to distort future gas prices,” said James Huckstepp, gas analyst at S&P Global Platts.
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