Joint Gas Purchasing Not a Quick Solution for Europe’s Supply Crunch, Says Reuters

By Kate Abnett

BRUSSELS – The European Union’s initiative for collective gas purchasing aims to optimize supply and enhance negotiation terms in the years ahead; however, analysts and EU officials express skepticism regarding its effectiveness during an abrupt supply disruption.

Increasing pressure on Europe to secure alternative gas sources arose after Moscow enacted sanctions on European subsidiaries of state-controlled Gazprom, while Ukraine halted a crucial gas transit route, prompting a spike in prices.

To reduce dependency on Russian gas and create a buffer against potential supply shocks, the EU launched a platform in April to unite demand and facilitate joint gas procurement. The urgency for alternative sources escalated following Russia’s cessation of gas supply to Bulgaria and Poland.

Despite the collective effort, European gas purchasers confront a landscape marked by soaring prices and constrained supply. Gas prices reached record levels following Russia’s invasion of Ukraine, which accounts for 40% of the EU’s gas imports, amidst a backdrop of rising costs over several months.

"It’s difficult to identify any uncommitted gas in the market. Why would the EU discover new sources that member states could not procure at the current price levels?" questioned Christian Egenhofer from the Centre for European Policy Studies.

In March, EU leaders pledged to advance joint gas purchasing with a focus on the upcoming winter. Nevertheless, the executive Commission seems to be shifting its focus toward long-term strategies.

A draft document from the Commission, part of an upcoming package aimed at reducing reliance on Russian energy, indicates that the joint purchasing initiative will endeavor to establish long-term partnerships with energy supplier nations.

Analysts suggest the EU could leverage its position as the world’s largest gas buyer to negotiate longer-term contracts, including for hydrogen and low-carbon electricity imports.

"One area where this initiative could be beneficial is in determining contractual conditions with major suppliers," noted Jacob Mandel, Senior Associate at Aurora Energy Research.

However, coordinating negotiations and purchases among the EU, national governments, and individual companies presents significant challenges. Additionally, the potential legal complications related to EU competition rules must be considered as larger companies collaborate.

Under the EU framework, negotiations would involve the Commission and government officials, but it remains unclear when companies will be included or how much influence they will have over pricing and contract specifics.

Participation in this scheme is voluntary, raising concerns about whether enough major buyers will enlist to form a substantial negotiating force.

Countries such as Bulgaria, Poland, Spain, and the Czech Republic have shown interest, according to EU officials. Germany, the largest gas buyer in the EU, supports the initiative, but a German official noted that the decision to participate ultimately lies with the companies.

Despite interest, some large energy firms have exhibited hesitation, as they are capable of negotiating their own agreements with significant suppliers. "The major players don’t perceive a business advantage in it for themselves," stated an EU official who spoke on condition of anonymity.