Common Natural-Gas Purchases May Get Green Light From EU

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  • Improved security of gas supply sought in draft regulation
  • European Commmission wants increased transparency in gas deals

European Union member states and natural-gas companies may get the green light to examine common gas purchases as a tool to boost their bargaining power vis-a-vis Russia and other external suppliers.

The European Commission, the regulatory arm of the 28-nation EU, plans to improve oversight of gas deals and to seek closer regional cooperation under its winter gas legislative package, according to draft proposals obtained by Bloomberg. The bloc, which imports 53 percent of the energy it consumes, wants to strengthen its security of supply and cut dependence on external sources.

Under the proposed regulation, EU member states and energy companies would be “free to explore the potential benefits linked to collective purchasing of natural gas in order to address supply-shortage situations,” according to the draft document. “Such joint purchasing mechanisms should be in line with the World Trade Organization and EU competition rules.”

The Brussels-based commission plans to unveil the proposed regulation on Feb. 10. Europe moved to tighten energy links among member states and to improve its security of supplies after the crisis in Ukraine highlighted the bloc’s degree of exposure to a possible disruption of flows from Russia. Moscow-based OAO Gazprom, the supplier of 27 percent of gas consumed in the EU, currently ships about a third of the fuel via Ukraine.

Bargaining Power

Eastern members of the EU suffered shortfalls at least twice in the past decade during price spats between the two former Soviet partners. They have called for common purchases to increase the bloc’s bargaining power.

“This is an idea that we have looked at; it may be possible,” Stefan Moser, head of security of supply unit at the European Commission, told a seminar on Wednesday held by the Bruegel think-tank in Brussels. “We will not put in place a central mechanism but rather leave it to the market as long as it’s in line with competition rules.”

The planned regulation will build on a 2012 law establishing an information-exchange mechanism to guard against market barriers and supply disruptions and on 2010 legislation that requires governments to notify the commission of contracts with third countries. The existing laws are a good basis to ensure security of supply, according to Thierry Deschuyteneer, executive secretary of Gas Infrastructure Europe, a lobby representing operators of transmission pipelines, storage facilities and liquefied-natural-gas terminals.

‘Fine Tuning’

“What will probably happen this year is that we will have a fine-tuning of what exists there already; more regional cooperation, more solidarity, improvement of mechanisms,” Deschuyteneer told the Bruegel seminar.

To increase transparency in gas negotiations, the commission wants to oversee contracts to ensure they are in line with EU law. The regulator has the power to penalize companies breaching the bloc’s competition rules. Last year it accused Gazprom of pursuing an unfair pricing policy in Bulgaria, Estonia, Latvia, Lithuania and Poland.

Under the draft regulation on security of supply, gas companies will have to notify national authorities and the commission of contracts whose duration is more than one year and which cover more than 40 percent of annual gas consumption in a member state. The commission will intervene if it identifies market abuses.

Gas Companies

The EU may also get access to additional information from gas companies, which national authorities will be empowered to request in a situation of a potential threat. The introduction of this provision is based on the commission’s experience last winter, according to the draft document.

“The commission observed that some undertakings in the EU experienced decreased gas supply from Russia,” the commission said in the draft regulation. “However, the commission received only limited information to assess this development because the competent authorities did not have a legal basis to request targeted information from the gas undertakings outside the emergency.”

Once published by the commission, the regulation will need support from member states and the European Parliament to enter into force.