Energy Union for Europe
- a policy proposal by Poland
16 June 2014, Vienna
Adam Janczak
Deputy Director of the EU Economic Department
Polish Ministry of Foreign Affairs
Russian gas
prices in Europe
(USD/tcm)
2012
2013
- prices in 1st half 2012
- estimates of prices in 2013
Based on unofficial data published by Russian
newspaper Izvestia in Feb 2013.
Prices for the Baltic states and CIS countries were not
disclosed.
Costs of lack of Energy Union
• Estimated welfare loss for the EU due to gas market inefficiency:
11-18 bln EUR/year [ACER*]
30 bln EUR/year [Booz&Co**]
• Per household, split
by Member States:
• Conclusion:
The costs are mostly
borne by customers
in CEE region
Source: ACER*
*ACER, Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2012, November 2013
**Booz&Co report for DG ENER, Benefits of an Integrated European Energy Market, July 2013
Energy Union for Europe – 6 pillars
1. Priority infrastructure development
2. EU-level solidarity mechanisms
3. Strengthen the bargaining power of Member States and
the EU vis-à-vis external suppliers
4. Development of indigenous energy sources in the EU
5. Diversification of energy supply to the EU - gas and oil
in particular
6. Reinforcing the Energy Community
Most ambitious:
3rd pillar – EU’s bargaining power
• Increase transparency of gas trade and ensure full compliance of
IGA’s and contracts with EU law:
– IGA template with restricted clauses and compulsory provisions
– Commission’s direct support during IGA negotiations and ex ante
verification of agreements
– Publishing aggregated contract data through market monitoring and
reporting mechanisms (e.g. by ACER)
• Demand aggregation mechanisms:
– dedicated gas purchasing agency
– voluntary consortia of interested companies
– obligation to sell gas on regional exchanges / platforms
Proposals in the European Energy
Security Strategy
• Common purchasing:
„The Commission will assess options for voluntary demand aggregation
mechanisms that could increase the bargaining power of European buyers in
compliance with EU and trade law legislation”
• Gas trade transparency:
“The Commission and Member states should increase transparency at EU level
regarding security of gas supply and explore how price information under
existing reporting mechanisms (…) can be further developed”.
• Review of IGA Decision:
“(…) the possibility to develop standard provisions and to request the
Commission’s assistance during negotiations. (…) Member States and relevant
companies must inform the Commission as early as possible before concluding
intergovernmental agreements having a potential impact on security of energy
supplies and diversification options and seek advice from the Commission
during negotiations. This requires a review of Decision No 994/2012/EU.”
Common gas purchasing
– choosing the optimal design
How?
When?
Where?
Top-down
(dedicated gas
purchasing agency)
Permanent
EU-wide
Bottom-up
(voluntary
mechanisms)
Ad hoc
(in case of crisis)
Regional
Common gas purchasing
– additional options to consider
• For voluntary mechanisms:
– “Free opt-in” with a „no opt-out” clause, so that the supplier
cannot break the alliance with offers of separate deals
• For ad hoc mechanisms:
– Contracts with a purchase option excercisable in case of crisis
• For regional mechanisms:
– diversification options key for successful joint negotiations
(grouping buyers 100% dependent on one supplier won’t bring
significant results )
ESA - ideas for the gas market
Euratom Supply Agency (ESA)
Gas Market
The co-signature of ESA is required to conclude
any supply contract, which helps to avoid
contracts likely to jeopardise the security of supply
and the smooth functioning of the nuclear
common market.
A body which would be notified of all major
contracts and agreements in the gas sector could
allow to track and avoid contracts detrimental to
competition and security of supply, e.g. through
elimination of certain contractual elements.
ESA monitors the market by collecting data on
prices, quantities and other contractual conditions
and publishes aggregated market data reports
providing a benchmark for the on-going contracts
negotiations.
Data on gas prices in the EU and individual
regions/Member States could be collected and
published in an aggregated form to level the
information advantage on the side of a dominant
gas supplier, without hampering commercial
confidentiality of individual agreements/contracts.
ESA monitors and forecasts possible non-match
of demand and supply on the market. In case of a
non-match, ESA could take additional actions in
order to balance demand and supply, e.g. by
sharing the available supplies or by collective
purchase (in practice, not experienced to-date).
A body could be established to perform demand
and supply forecasting and launch collective
purchasing mechanism in crisis situations where
demand and supply cannot be matched due to
supply disruptions.
ESA ensures that supply from one external
supplier does not exceed a reasonable level of
dependence, so as to guarantee supply
diversification and proper market functioning.
Concentration thresholds could be introduced for
gas markets at national, regional and EU level in
order to avoid single supplier dominance.
Other Inspirations
• BAFA:
BAFA (the German Federal Office of Economics and Export Control) calculates and
publishes the average monthly cross-border price of natural gas imported into
Germany. The German Border Price is an important benchmark in gas contract
negotiations. BAFA also publishes the quantities of imported natural gas broken down
by main countries of origin.
• Caspian Development Corporation (CDC):
The CDC was a concept of a block purchasing agreement proposed by the
Commission, designed to bring new gas supplies from the Caspian region. The project
acknowledged the potential negative effects of collective purchasing on competition
– in order to balance them, various countermeasures were proposed (e.g. gas-release
program, “Chinese walls” between shareholders and CDC staff). The possibility of
requesting an informal Guidance Letter from the Commission was also considered.
Conclusions
• Increased bargaining power = market transparency and demand
aggregation + alternative sources (external, indigenous);
• Not all ESA mechanisms have been used in practice due to the well
functioning uranium market – this makes them even more justified
on the malfunctioning gas market;
• Russian-Chinese deal proves that negotiations between equal
partners leads to optimization of gas price.
Thank you
for your attention
Adam Janczak
Deputy Director of the EU Economic Department
Polish Ministry of Foreign Affairs