EC proposes joint gas buying, storage scheme amid record high prices

The European Commission on December 15 proposed measures to allow for the voluntary joint purchase of gas by member states to help keep storage levels high in response to record high gas prices.

As part of a number of proposals on EU gas market reform, the EC also said it was proposing that long-term gas import contracts would not be allowed to extend past 2049 to prevent countries from being "locked in" to fossil gas.

European gas prices are again at record highs on renewed winter supply concerns given low storage stocks and lower-than-expected Russian deliveries.

According to S&P Global Platts price assessments, the TTF day-ahead price hit a new record of Eur128.33/MWh ($42.38/MMBtu) on Dec. 14, up 670% year on year.

The EC said its proposals would foster a "more strategic approach" to gas storage and integrate storage considerations into risk assessments at the regional level.

"The proposal enables voluntary joint procurement by member states to have strategic stocks in line with the EU competition rules," the EC said.

It added that the EU's security of supply regulation would be revised to enable more effective use of gas storage and to anticipate and prevent risks at regional level.

"The measures will help ensure a high filling level of storage at the beginning of the heating period in the EU. The larger the volume of gas 'in stock' the more the EU can compensate for temporary shortages of gas supplies," it said.

'Bottom-up' approach

Speaking during a press briefing, EU energy commissioner Kadri Simson said the process that had been proposed on joint gas buying was "straightforward".

"Member states that wish to do so define their own parameters for the joint action -- how much gas is to be bought, for how long, how this gas would be used in an emergency situation, and then they inform the Commission," Simson said.

The EC would then inform other member states of the action being taken and check that energy market and state aid rules are respected.

"In this regard, this is a true European bottom-up approach," Simson said. "Member states organize themselves voluntarily according to their needs and at the same time the Commission is involved to ensure transparency, respect of the rules and experience sharing," she said.

Simson said the proposals would strengthen the security of gas supply and enhance solidarity between member states. This, she said, would "counteract price shocks and make our energy system more resilient".

As part of the proposals, member states would have to include an analysis of their storage levels and of potential risk related to security of supply.

"This applies also when storage is owned by third country entities," Simson said.

Subsidiaries of Russia's Gazprom own several gas storage sites across Europe, notably in Germany and Austria.

Simson said that wherever risk was identified, counter-measures would have to be introduced. "The proposal provides a range of options such as minimum storage obligations, and other options like auctions and tendering," she said.

The proposals also required "undistorted" trade of unused storage capacity on market platforms, Simson said.

Long-term contract ban

The EC said it recognized the transitional role of fossil gas, but that its goal was the "gradual and timely" phase-out of fossil gas wherever electrification or a switch to renewable or low-carbon gases was possible.

Part of this would be to restrict the length of long-term gas import contracts. "To avoid the lock-in of fossil natural gas, a limit is set for long-term gas contracts, which should not be able to extend beyond 2049," it said.

Russia and Algeria in particular supply gas to European buyers mostly under long-term contracts.

Simson said the ban on long-term contracts beyond 2049 would send a clear message that the EU gas market would have to be decarbonized.

"This is the message that market participants know already. All our member states have committed to becoming climate-neutral. That means by 2050 our gas market has to be decarbonized," she said.

"Long-term contracts for gas are normally used to open new sites of gas production and ensure their profitability. Such a ban would send a strong and clear signal that such activities should not be pursued unless the emissions are abated."

Claude Turmes, Luxembourg's energy minister, said in response to the proposals that adoption of the new measures should be accelerated.

"The revision of the security of gas supply regulation should follow a fast-track procedure to establish strategic stocks of gas as soon as possible," Turmes said on Twitter.