The rapidly changing environment requires Europe’s energy system not only to adapt, but also to find the right mechanisms to ensure its unity in the face of turbulent challenges. In March 2022, European solidarity was translated into concrete political action when EU leaders officially agreed to jointly buy natural gas, liquefied natural gas (LNG) and hydrogen to protect citizens from skyrocketing energy prices and dependence on Russian ones reduce imports. In theory, this shows a European focus and solidarity in practice. But what does that mean in practice?
The idea of joint gas purchase agreements is not new. In April 2014, the then Prime Minister of Poland, Donald Tusk, proposed this instrument for joint gas purchasing in a binding form as part of the “EU Energy Union” framework. Mandatory joint procurement was welcomed, but with a touch of skepticism as Member States were reluctant to follow this one-size-fits-all approach due to differing national political views. Therefore, a year later, on March 19, 2015, the EU governments endorsed the voluntary option of this mechanism as a compromise.
The Ukraine, Georgia, the Republic of Moldova and the countries of the Western Balkans can also join this form of overall purchase agreement.
Today, however, the energy policy landscape is changing at the speed of light, and this tool may be more relevant than ever. According to Kadri Simson, European Commissioner for Energy, the joint procurement process is “straightforward”. “Member States that wish to do so set their own parameters for the joint action – how much gas to buy, for how long, how that gas will be used in an emergency situation, and then they inform the Commission.” inform other Member States about the measures taken and check compliance with energy market and state aid rules. To this end, the EU launched the EU Energy Platform – to pool demand, coordinate use of infrastructure and negotiate with international partners to facilitate joint purchases. It is important that the Ukraine, Georgia, the Republic of Moldova and the countries of the western Balkans can also join this form of overall purchase agreement.
Lessons learned from joint pandemic procurement
This approach may sound familiar to you as the EU was already managing a solidarity mechanism during the pandemic when the Commission coordinated joint procurement of Covid19 vaccines to ensure timely supplies to all Member States. Some experts claim gas is much more problematic than buying vaccines. Pessimistic voices argue that the mechanism will work if everyone participates. Purchasing power works best when you buy a lot – and at the moment it’s not clear what percentage of EU gas would fall under proposed joint procurement. In addition, the distribution aspect could be problematic. EU countries have varying levels of dependence on Russia, and not every Member State has storage facilities or direct access to an import terminal for cargo arriving by ship.
However, there are also arguments for this mechanism. For example, Christian Egenhofer, an associate senior research fellow at the Center for European Policy Studies (CEPS), said that an effective joint gas purchasing plan could discourage member states from competing on gas purchases, but also discourage shabby offers to autocratic rulers. In addition, and in the longer term, the common gas purchasing platform could lead to a truly European gas supply security policy.
The renaissance of the solidarity mechanism
Despite criticism, the crisis is urging the EU to take joint action. On April 27, 2022, the state-controlled Russian energy company Gazprom cut off gas supplies to Poland and Bulgaria because they refused to pay in Russian rubles, as President Vladimir Putin had requested. European Commission President Ursula von der Leyen responded, stressing in her statement that “Both Poland and Bulgaria are now receiving gas from their EU neighbours. The era of Russian fossil fuels in Europe will come to an end.” Bulgarian Energy Minister Alexander Nikolov also emphasized that Bulgaria is relying on the Commission’s joint procurement strategy when purchasing gas.
Finland was also in the same position on May 21, 2022, when Gazprom officially halted gas exports as it had not received a payment in rubles. Finland found the solution in a joint approach and, together with Estonia, concluded an agreement on the joint lease of a floating terminal for LNG, which will ensure gas supplies to both countries. More recently, Gazprom extended its gas cuts on June 1, 2022 by halting supplies to GasTerra, which buys and trades gas on behalf of the Dutch government. It also cut off gas supplies to Danish energy company Ørsted and to Shell Energy for its contract to supply gas to Germany after both companies failed to make ruble payments. GasTerra said it had found alternative contracts to supply the 2 billion cubic meters of gas it expected from Gazprom by October. Ørsted also stated that a gas blackout would not immediately jeopardize the country’s gas supply. They would turn to the European gas market to fill the gap.
“The situation is escalating to such an extent that the use of energy as a weapon is becoming a reality,” said Robert Habeck, Federal Minister for Economic Affairs and Climate Protection.
In Germany’s case, while the move seems largely symbolic, according to Robert Habeck, Germany’s Federal Minister for Economic Affairs and Climate Protection, which accounts for about 3 percent of Germany’s Russian gas imports, ‘the situation is coming to a head that the use of energy as a weapon is becoming a reality’. He also stressed that Germany could deal with the recent disruption in part by securing alternative supplies, adding that there was no need to raise Germany’s alert level. The country’s three-stage contingency plan, currently in stage one, could result in the grid regulator rationing gas if supplies run short.
At this critical time, the solidarity mechanism is experiencing a renaissance. In the end it isEffectiveness depends on the quantities that are bought and how many Member States will comply.However,Given the need to reduce dependence on Russian fossil fuels as quickly as possible, it is clear that no Member State can meet this challenge alone. A truly united European energy front is the only way forward.