Ref. Ares(2023)1832053 - 14/03/2023
KEY MESSAGES
[EU Energy Platform]
The EU Energy Platform has been setup, with the agreement
and support of all Member States, as a cornerstone of our
strategy to diversify away from Russian fossil fuels and to
improve security of supply ahead of next winter, but also beyond.
The objectives of the platform are articulated around, first, the
aggregation of gas demand for joint purchase, second, the
optimisation of gas infrastructure in the EU and, finally, the
coordinated outreach to international partners.
Turning first to coordinated outreach, it is our strong belief that
establishing long-term cooperation and partnership with our
trade partners is essential to support the delivery of gas, and
later hydrogen, to the EU.
To this end, we have engaged significant efforts, namely in the
context of the EU-US Energy Security Taskforce.
We have also signed a tri-lateral Memorandum of Understanding
between Israel, Egypt and the EU on cooperation related to
trade, transport and export of natural gas to the EU. There was
also an MoU signed by President von der Leyen and
Commissioner Simson with Azerbaijan and we are working on
more.
We have also established a taskforce with Norway, our largest
gas supplier, in order to jointly define measures that can
contribute to the stabilisation of the gas markets.
When it comes to the optimisation of the infrastructure and
supply at regional level, Regional Groups are a promising forum
to work together on defining and implementing measures in the
immediate and short-term to support diversification and security
of supply at regional level.
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We have established five Regional Groups in that respect: South
East Europe as the first one triggered by Bulgaria, Central-
Eastern Europe, South West and North East Europe, and Baltics
with Finland.
These Groups are responsible to implement short-term
measures improving security of supply that are aggregated into
very actionable action plans.
[Demand aggregation and joint purchase]
Finally, progress has been achieved in relation to demand
aggregation and joint purchase
Our aim in that respect is to make optimal use of the collective
political and market weight of the European Union and its
Member States to dampen prices in negotiations.
In addition, it shall help us to avoid a scenario where Member
States are again outbidding each other on world markets and
driving prices up for Europe.
Joint purchasing will strengthen our access to new or additional
gas sources across EU Member States.
The EU, considered as a whole, is the first importer of natural
gas globally. Our companies have demonstrated impeccable
reliability and ability to pay (even high prices). This is why many
producers want to conclude deals with our companies and we
should leverage this collectively in order to attract the most
competitive supply offers through joint purchasing. Small players
and players in landlocked countries could benefit most.
We have intensively worked on the means to operationalise
demand aggregation and joint purchase of gas by companies.
Various models have been presented and discussed with
Member States.
Options range from joint tendering by companies to a gas
purchasing agent (we understand from companies that the joint
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o
Demand aggregation - gas purchasing companies would
voluntarily aggregate their demand using through a
electronic portal. As part of the demand aggregation,
Member States would have to require that volumes
equivalent to at least 15% (around 13.5 bcm for the EU as
a whole) of their storage filling requirements for next year.
The rest is purely on voluntary basis.
o
Tendering and purchase - companies that have
participated in the demand aggregation process described
above may decide to enter into contracts with the suppliers
that have offered gas under this process. They could
decide to form a gas purchasing consortium for that
purpose. Respect of competition rules would have to be
ensured.
[In the context of the Industry Advisory Group where Shell is
observer, we will work with companies to define most suited joint
tendering process where companies will be allowed to submit
gas demand they would like to jointly procure. The demand will
be aggregated on a secure platform and tendered. Bidders will
be able to submit their bid through the electronic platform.
Contracting would follow.
Provided that EU gas buyers are willing to participate and
implement the mechanism, we see a major role for companies
such as Shell to participate as bidders.]
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DEFENSIVES How will the Platform work? Will it actually buy gas?
The process starts with identifying the demand for gas to be bought jointly – this is a
voluntary scheme. After that, the EU Energy Platform would facilitate the process of
matching this demand with supply either via a dedicated electronic platform or through
dedicated joint ventures. The direct advantage of it is avoiding intra-EU competition and
avoiding increasing prices even more. Through allowing companies to cooperate – in
strict respect of competition rules, we should also see a stronger negotiation position on
the European side. It would also make it simpler for suppliers. All this process will be
accompanied by intense diplomatic efforts that have already started.
The suppliers will only agree to long-term contracts, but this is not in line with the
Green Deal. How will you reconcile that? Would that mean paying more expensive
(spot) prices?
Indeed, some suppliers are interested in longer contracts. Some of such contracts
would certainly not go against our Green Deal objectives as we are talking about
substitution of volumes: gas from other sources would replace Russian gas, of which
the EU imported over 150bcm in 2021. Also, in our analysis for the Fit for 55 package
we foresee some fossil gas consumption in the EU even in the 2030s.
What is the added value of this platform if the Member States are making deals on
their own?
Most importantly, the EU Energy Platform, while voluntary, allows to avoid intra-EU
competition, which would only bring prices higher for everyone. Moreover, the scheme
reflects the principle of solidarity, whereby smaller EU MS would benefit from
coordinated efforts on a market that may be new to them. We will also be advocating for
some of those recently contracted volumes to be made available to the Platform, so re-
sold, if possible. Finally, through increased transparency and optimal access to
infrastructure, we would allow for the most efficient use of the gas network of the
continent.
How many Member States are interested in participating in joint purchases?
The scheme is open to all of them and we are waiting for expressions of interest. So far
most – if not al , EU MS indicated initial interest. Once we discuss further details of the
functioning of the Platform with them we should see clear stance from them.
How much will you reduce the dependency by the end of this year? Why are you
no longer talking about 2/3 reduction by the end of 2022?
The total figure will be the result of an incremental steps: contracts’ expiration, lower
levels of offtake under contracts and possibly more only if strong political decisions are
taken. Importantly, a reduction of demand, due to energy efficiency, behavioural
changes, renewable deployment, etc. will drive this process.
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Joint Purchasing Options
Following the request of the European Council1 the Commission is assessing the
opportunity to develop a ‘joint purchasing mechanism’ (JPM). The aim of the JPM is
to provide a framework for participating members to negotiate and contract the
aggregated gas demand. The expectation is that through pulling their demand, the
participants would be able to achieve better conditions with gas suppliers. In addition,
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by replacing Russian gas supplies, JPM should support wider diversification efforts.
Participation in JPM should be voluntary. It should be open to participants from the
Union, Western Balkans and the three associated Eastern Partners. It should be
financially viable and limit any potential negative impact on competition. In the longer
term, beyond natural gas it should also cover hydrogen.
It should be noted that JPM is one pillar of a wider initiative, the EU Energy Platform,
which the Commission and Member States have set up earlier this year2. Next to
facilitating the organisation of joint purchasing, the EU Energy Platform is also helping
the EU’s gas infrastructure to better absorb increased Liquefied Natural Gas imports
and is coordinating international outreach to new gas markets and partners. The EU
Energy Platform is also used to better coordinate Member States’ and Union action to
address security of supply related concerns following the recent reduction of Russian
gas flows to the EU.
1. JOINT PURCHASING TOOLS
Our approach is to enable joint purchasing options to cater for different situations,
both in the short term, as well as for longer-term needs. We have identified three
possible options to organize joint purchasing. None of them are necessarily mutual y
exclusive.
Option A: Joint Gas Tendering
Under this model, a platform would be created to aggregate the demand which will
then be tendered out with a view to matching it with bids from gas suppliers. The
operation of this platform could be entrusted to an entity which would be selected in
an open process. It will have an EU or regional scope and will be capable of
administering the operation with the necessary technical expertise.
Prospective gas purchasing companies will have the possibility to indicate to the
platform the gas volumes they are willing to purchase through joint tendering. They will
be asked to specify elements such as the volumes (level and variations), the
location/delivery point and the timing/duration. The platform will aggregate the
demand from all interested gas purchasing companies. Auctions will then be
organised trough the platform allowing gas suppliers to submit bids for the
aggregated gas volumes indicated by the importers. At the end of the allocation
process, the importers will individually enter into supply agreements with the winning
tenderer.
Under this option the Commission will act as a facilitator and arranger. It will identify
the interested companies / Member States, help setting up a tool to aggregate the
volumes, organize expertise for putting together tender documentations, etc. The
Commission or the EU will not become party to the transactions resulting from the
joint tendering mechanism.
Option B: Gas Purchase Joint Venture (JV)
The gas purchasing mechanism could also be organized more formally as a Joint
Venture. Under this option the European Commission will facilitate setting up of a JV
as a separate legal entity, in which EU gas companies, who would like to purchase gas
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jointly, will hold shares. It will be responsible for joint gas purchase and re-distribution
of these volumes to final purchasers, which could be their own gas supply
subsidiaries or third companies. The JV will be a “fully-functioning” company with its
own balance sheet, which will have to be capitalised through its shareholders. It might
well need to be able to take on substantial financial obligations, namely in the context
of the take-or-pay obligations under the new Gas Supply and Purchase Agreements
(GSPAs). The JV will, in principle, be open to entry of new participants.
There are several ways this could work. For instance, the JV could enter in
negotiations and sign GSPAs with gas suppliers in order to match the volume,
demand profile and timing of the aggregated gas demand from the final purchasers
(own gas supply subsidiaries or third companies or countries). Under this option, the
shareholder rights to purchase gas from the JV will be assigned on a pro-rata of each
company’s level of equity interest in the JV. To manage this, the JV will then enter in
downstream gas supply contracts with its shareholders3.
Tool C: Gas Purchasing Agents
Some downstream gas suppliers may not have sufficient demand or financial strength
to either buy enough gas on their own or even to be part of a purchasing joint venture.
In this case, the Commission would take steps to enable other entities to act on their
behalf as entrusted entities (Gas Purchasing Agents) which would purchase gas on
behalf of its customers.
Such an entity could be one of the large gas suppliers. The advantage for this type of
entities to act as Gas Purchasing Agents would be to increase their own purchasing
volumes, while the smaller companies could benefit from the negotiation power of the
Gas Purchasing Agent.
The Gas Purchasing Agent would enter in negotiations and sign GSPAs with
upstream gas suppliers in order to match the volume, profile and timing of the
aggregated gas demand of their customers. As a further variant, a Gas Purchasing
Agent could participate in a Joint Venture on behalf of smal er companies or
participate in a joint tender.
Joint tendering under the legal proposal
This proposal addresses these urgent issues by developing a temporary joint
purchasing tool, in line with the request from Member States1. There is considerable
time pressure for this tool to be ready no later than in early spring 2023, and in
particular ahead of the next storage filling season. Bearing this in mind, it is proposed to
move quickly to establish the central tenets of joint purchasing under Article 122 as
soon as possible, and therefore a number of these elements should apply on a
provisional basis.
1
As foreseen by the European Council [ref conclusions], participation in the Energy Platform
should also be open to Energy Community Contracting Parties.
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The proposal for joint purchasing establishes a process consisting of two steps: first,
demand aggregation of natural gas; second, possible joint purchasing under the Energy
Platform.
(i)
First step: Demand aggregation
In the first step, gas purchasing companies would aggregate their demand using a
service provider organising this process, contracted through a public procurement
procedure by the Commission for this purpose. Companies can submit their demand for
gas (in terms of volume, delivery time, duration and place) to the service provider via an
IT tool to collect this data. The service provider would publish these data, with
appropriate protection of confidential information, on its website, seeking offers through
a public tender process for volumes of natural gas that meet the aggregated demand.
This step would be voluntary except that – given the importance of storage filling –
Member States would have to require that volumes equivalent to at least 15% (around
13.5 bcm for the EU as a whole) of their storage filling requirements for next year were
included by their companies in the demand aggregation process.2 The companies which
participated in demand aggregation under a mandatory obligation could still decide
whether to actually purchase the gas or not after the aggregation process. Further, the
gas purchased does not necessarily need to be used for storage filling.
Given the importance of storage filling in the coming year in particular, this mechanism
to jointly purchase gas would benefit from market leverage from joint purchasing and
help ease the uncertainties and abnormally high prices seen in the last filling season
this year.
Given the need for urgency, the service provider should be an existing company with
detailed knowledge of energy markets and appropriate IT tools and expertise to perform
these tasks. The joint purchasing is open to participation of companies from Energy
Community Contracting Parties (Western Balkan, Ukraine, Moldova and Georgia).
(ii) Second step: Coordinated gas purchasing
In a second step, companies that have participated in the demand aggregation process
described above may decide to form a gas purchasing consortium in order to enter into
contracts with the suppliers that have offered gas under this process. They could
thereby decide to purchase the gas on a joint basis, and coordinate elements of their
positions such as volumes, prices, delivery points and time of delivery. A single gas
purchasing consortium with strong buying power increases the likelihood of achieving
better prices, but more than one gas purchasing consortium could emerge, given the
very different demand pattern of undertakings across the EU. Respect of competition
rules would have to be ensured (see “Consistency with other EU policies” below).
(iii) Ad hoc governance arrangements
2
The storage filling target is 90% for countries with underground storage facilities; for other
Member States an equivalent obligation is applied for the winter 2023/24.
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The aforementioned measures should be accompanied by an adequate governance
structure to ensure effective coordination to meet the objectives. Therefore, a Steering
Board should be established on an ad hoc basis, composed of representatives of the
Commission and Member States, to oversee both the process of (a) demand
aggregation and (b) coordinated gas purchasing. The Steering Board can ensure
transparency in the process and provide guidance so as to ensure that joint purchasing
effectively respects security of supply and the principle of energy solidarity.
The proposal is carefully balanced and respects the principle of proportionality. There
are certain necessary mandatory elements – for example on pooling of demand for the
filling-in of gas storages – but these in no way constrain the freedom of undertakings to
decide on whether to buy or not depending on the conditions that are offered through
the demand aggregation process. The objective of joint purchasing is to support EU
undertakings in their efforts to obtain additional gas and help to ensure more equal
access to new or additional gas sources in the face of the current acute threat to the
security of supplies. In addition, the proposal addresses the strong interest in a number
of Member States to be able to operate in gas purchasing consortiums, subject to the
relevant competition considerations.
In particular, as described, the tendering of aggregated demand for gas by the Service
Provider could play a pivotal role in helping Member States to fill gas storages for the
winter 2023/2024. Indeed, it could also therefore strengthen EU solidarity by helping
ensure the fairer distribution of gas. Aggregation of demand and joint purchasing could
also reduce the risk for individual gas undertakings in some Member States of
overpaying for gas contracted on tight short term markets. It could also help smaller EU
undertakings, including in landlocked countries that do not have the necessary
experience in contracting LNG, to be able to pool their demand to contract LNG cargoes
(which may be too large for individual undertakings to handle all at once), and also help
them to structure LNG supply according to their particular needs. Joint purchasing could
support particularly those undertakings that were previously purchasing gas only or
mainly from Russian suppliers. Joint purchasing could grant a preferential treatment or
support to supply of renewable gases such as biomethane and hydrogen, and to gas
which would otherwise be vented or flared. Undertakings concluding contracts pursuant
to this Regulation should be encouraged to use the UN Oil and Gas Methane
Partnership 2.0 Standard to measure, report and verify methane emissions along the
supply chain to the European Union. Finally, joint purchasing in the future could
strengthen the potential for renewable energy supplies in helping to ensure access to
future imports of hydrogen from non-EU sources.
(end)
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ANNEX - CV - László Varró
Vice President Global Business Environment, Shell
László Varró recently joined Shell as Vice President Global Business
Environment. He worked for the IEA for the last decade. He became the
Agency’s Chief Economist at the start of 2016, succeeding Fatih Birol, who
took over as IEA Executive Director. As Chief Economist he supported all
Directors and teams at the IEA in ensuring consistent energy economics
and analytical rigour for the Agency’s work. Before assuming the position of
Chief Economist, Mr Varró served as IEA Head of Gas, Coal and Power
Markets.
Before joining IEA he has worked for Hungarian oil and gas major MOL
Group as Chief Economist and from 2008 as Director for Strategy
Development. From 2000 to 2005, Mr Varró was the Head of Price
Regulation at the Hungarian Energy Office where his main projects were
unbundling and network tariff setting, the introduction of the first feed-in
tariffs for renewables in Hungary as well as restructuring power purchase
agreements during market liberalisation.
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