Joint EU effort to buy gas fails to ignite market

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The EU’s flagship joint gas-buying platform handled only a tiny fraction of the bloc’s demand, according to data that cast doubt on its launch of critical minerals and hydrogen.

People who have seen internal figures said the joint procurement exercise, called AggregateEU ​​and introduced at the height of the energy crisis that followed Russia’s invasion of Ukraine, resulted in only about 2% of potential demand being contracted.

The platform was inspired by the bloc’s successful coordination of vaccine purchases during the Covid-19 pandemic by leveraging the bloc’s size to achieve lower prices.

Under the scheme, the European Commission has mandated that each member state ensure that participating local companies submit orders equivalent to 15% of each country’s gas storage obligations. The actual purchase of gas remained voluntary.

In total, the platform matched gas buyers and sellers for 43 billion cubic meters of demand, but only about 1 bcm of gas was ultimately contracted and reported to the commission, according to three people with knowledge of the confidential data.

EU officials pointed out that companies were not required to report commercially sensitive data, so more contracts could have been concluded.

But the low number has sparked debate about the usefulness of the joint procurement tool, as Commission President Ursula von der Leyen pledges to extend it to more goods during the next Commission term, due to start later this year .

“We need to use the strength and size of our market to ensure supply. This is why I will propose to activate and expand our aggregate demand mechanism to go beyond gas and include hydrogen and critical raw materials,” von der Leyen said in her policy guidelines for the next five years, published in July.

However, participating energy companies said the platform worked more as a matching tool rather than blocking demand to achieve lower prices.

Norwegian oil and gas group Equinor said the mechanism was “not a way to market” for the company and that “in the (European) gas market that is working well. . . it’s hard to see this change.”

Another energy company, which requested anonymity, said the platform “has not brought additional volumes to the market. . . so he didn’t achieve what he set out to do.”

It added that “during the crisis, the market worked quite well, with a price signal that allowed gas to move where it was needed, so there was no need for an additional AggregateEU ​​platform.”

Both companies said their participation did not result in any transactions.

Andreas Guth, secretary general of industry body Eurogas, said the original concept of “pooling demand into a larger consortium and then purchasing gas jointly” presented two problems: long-term gas demand forecasts in Europe were uncertain, given the bloc’s efforts to reduce the use of fossil fuels and EU competition law.

“We cannot really engage in consortia unless we are granted exemptions from EU competition rules,” Guth said.

“The only advantage of AggregateEU ​​is that it provides access for a small demand that might otherwise struggle to reach the market,” he added.

A senior EU diplomat said governments initially had trouble convincing companies to sign up for the procurement project to fill quotas set by the commission.

In its assessment of the tool published in June, the European Court of Auditors said it “could not determine the added value (of the platform) in relation to gas trading platforms, nor did we identify a market failure that AggregateEU ​​is addressing” .

It added that while the scheme “appears to be fulfilling its purpose of supporting smaller companies. . . assessing the extent to which the other benefits that the commission claims AggregateEU ​​offers have materialized requires a level of information about concluded contracts that is not available”.

The commission said the tools it introduced to tackle the gas crisis, which also included a gas price cap, mandatory storage targets and legislation to promote gas sharing between member states, “work together, not in isolation”.

A Commission spokesman said that AggregateEU ​​”increased market transparency and aggregated demand from European buyers to better coordinate gas procurement, while leveraging Europe’s collective market share to achieve more competitive prices”.

Companies have shown “high interest” in participating, they added.

Fatih Birol, head of the International Energy Agency, also backed the tool, saying it would “help Europeans use their muscle in an appropriate way in global energy markets”.