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3rd Jul 2022

EU plan to buy gas together is 'not the silver bullet'

  • Joint-procurement is likely the only feasible option on the table at this weeks summit (Photo: Europan Union)
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EU heads of state and government are expected to agree on Friday (25 March) on a proposal to jointly buy natural gas, liquified natural gas and hydrogen in an effort to protect citizens from price swings and lessen reliance on Russian imports.

Europe's gas prices have been on a rollercoaster ride since October 2021, at times reaching prices between 10 and 20 times higher than last year during spring. On top of this, Russia's invasion, and the ensuing energy crisis, has prompted EU leaders to speed up efforts to decrease Europe's dependency on Russian gas.

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The proposal for joint procurement of gas was spearheaded by Belgium and Spain.

"This will increase bargaining power with gas suppliers, which will result in lower prices," an EU diplomat who asked not to be named told EUobserver. "We expect this to have a moderating effect on prices."

The Belgian prime minister Alexander de Croo, in an interview with the Financial Times, has compared the joint purchasing of gas with the joint purchasing of Covid-19 vaccines by the EU Commission.

"Joint purchasing has a moderating effect," Christian Egenhofer, a senior research fellow at the Brussels-based Centre for European Policy Studies (CEPS) said. "[But] there is no way around the fact that gas prices will remain very high, even if moderated by joint purchasing."

But one EU diplomat, less enthusiastic about the scheme, compared de Croo to Don Quixote's Sancho Panza fighting against windmills.

"If we want to achieve strategic autonomy in our energy mix, we need to accelerate clean energy transformation," the diplomat said, adding: "That is the only solution."

According to Simone Tagliapietra, an energy expert at Brussels-based think tank Bruegel, it is a mistake not to try and tackle the problem of gas prices now.

"Europe is the world's biggest importer of natural gas. If it moves together the EU can use its economic clout to negotiate better prices," Tagliapietra said.

On Friday, member countries are also expected to decide on a commission proposal that will require them to fill up their gas stores at least 80 percent.

According to one EU diplomat, joint-procurement and filled-up storage levels will dampen speculative behaviour on the gas markets, which has caused gas prices to swing double digits from day to day.

But the effect will likely be small. "There is no silver bullet solution," the EU diplomat said.

"To really tackle volatile price swings the EU should implement price caps," Tagliapietra argued.

"Or they could put a tariff on oil and gas and use the proceeds to help compensate households on their gas bills" he added.

But a German-led coalition of countries, that include Denmark and the Netherlands oppose the policy of putting a ceiling on energy prices.

"If you put a cap on gas, suppliers will simply sell it to China," one EU diplomat told EUobserver. "And if the EU compensates the difference, we, in effect, subsidise Gazprom."

Deep differences on price caps are unlikely to be resolved, leaving joint-procurement as the only feasible option on the table for now.

More US gas may explode prices in Europe, experts warn

Washington will increase supply of liquefied natural gas before the end of the year, US president Joe Biden and EU Commission president Ursula von der Leyen announced on Friday, amid warnings that such a move could push prices even higher.

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