Council agrees on the substance of new measures concerning the joint purchase of gas and a solidarity mechanism

EU energy ministers today reached agreement on the content of the proposal for a Council regulation on new temporary emergency measures to contain high energy prices and improve security of supply. The new measures will strengthen solidarity in the event of a real emergency and shortage of gas supplies, ensure better coordination of joint gas purchases, limit the volatility of gas and electricity prices and establish reliable price benchmarks.

The EU has already managed to fill gas storage facilities to secure supply during this winter. Today we have taken an important step to guarantee supply also for next winter. Emergency measures will help us to use the power and benefits of our common market and jointly ensure a sufficient gas supply for next year. This sends the right messages to the market and strengthens our solidarity mechanisms in the event of a real emergency.

Joint purchasing

The new rules will allow Member States and energy companies to jointly buy gas on world markets. Pooling demand at EU level will ensure that EU countries have a greater impetus when buying gas on world markets and that Member States do not bid against each other in the process.

In practice, Member States have agreed that gas undertakings and gas consuming undertakings located in the EU and in the countries of the Energy Community* will present their gas import needs. The EU will hire a service provider to calculate aggregate demand and search for offers on world markets in order to meet total demand. Member States will require domestic undertakings to use the service provider to include in the demand aggregation volumes equivalent to 15% of their respective gas storage facility filling obligations for 2023 (around 13.5 billion cubic metres for the EU as a whole). Above 15%, aggregation shall be voluntary, but shall be based on the same mechanism.

In a second phase, gas companies and gas consuming companies can choose to purchase gas through the platform – individually or in consortium with others – from natural gas producers or suppliers that have met aggregate demand.

The Regulation also includes provisions to increase the transparency of planned and completed tenders and gas supply purchases, with the obligation for companies to notify the Commission and Member States in advance if they intend to purchase more than 5 TWh/year (just over 500 million cubic metres).

Member States have explicitly stated that Russian gas will be excluded from the joint purchase.

They clarified the rules concerning the organisation of joint purchasing, the selection of the service provider and participation in joint purchasing. In particular, they clarified that the tasks of the service provider include a proportionality clause to ensure equal treatment between larger and smaller undertakings. They have also specified how the underutilized capacity of the infrastructure would be used more efficiently.

Member States have also explained in more detail the transparency measures to protect commercially confidential information.

New benchmark for gas prices

The Regulation entrusts the Agency for the Cooperation of Energy Regulators (ACER) with the task of developing a new complementary price reference that will serve to establish stable and predictable prices for LNG transactions. The new reference will be available no later than March 31, 2023. The reason is that many gas contracts in Europe are indexed to the main European gas exchange, the Securities Transfer Mechanism (TTF), which is a virtual platform for gas trading, widely used for gas transactions in the EU. The TTF serves as the main reference for setting the price of gas in wholesale contracts which, in turn, set prices on retail markets. However, the FTT no longer accurately reflects the price of LNG transactions in the EU.

The Regulation will also introduce a price cap for same-day transactions through the TTF. This intraday volatility management mechanism will prevent excessive price fluctuations during a trading day. This will prevent derivatives prices from skyrocketing and falling beyond the upper and lower bounds of the intraday price collar. The European Securities and Markets Agency (ESMA) will be tasked with helping to short-circuit intraday derivatives trading.

In this respect, Member States have clearly stated that the intraday volatility management mechanism will be established for all energy-related commodity derivatives.

Market correction mechanism

The proposal for a Regulation initially included a general framework for the introduction of a possible temporary ‘market correction mechanism’ to limit gas prices in the FTT. Subsequently, on 22 November 2022, the Commission presented a parallel proposal (also based on Article 122 of the Treaty) containing specific details on a market correction mechanism. The Council therefore deleted the provisions on the market correction mechanism from this Regulation in order to address the issue separately and in a coherent manner. The Council will now analyse the proposed market correction mechanism and seek to reach a political agreement as soon as possible.

New solidarity measures

The Regulation introduces new solidarity measures in the event of a real shortage of gas supplies, complementing the existing rules. The new rules allow Member States to reduce the non-essential gas consumption of protected customers (such as outdoor heating or residential pool heating in homes), in order to supply gas to essential services and industries. Essential consumption by protected customers (such as indoor heating in homes, schools and hospitals) will be protected in all circumstances. Member States shall be free to define what constitutes non-essential gas consumption.

The new rules also extend measures allowing Member States to seek solidarity from other Member States in cases where they are unable to guarantee the critical volumes of gas needed for their electricity system.

Member States have clarified exemptions from these rules, e.g. essential volumes of gas supply for solidarity-protected customers (households, certain social services), gas supplies for electricity needed to produce and transport gas, certain critical infrastructure and installations essential for the operation of military services, national security and humanitarian aid.

The Regulation also extends solidarity measures to Member States with LNG facilities.

The Regulation lays down a number of default rules for gas sharing in the event of a real emergency. The default rules will only enter into force if Member States have not concluded bilateral agreements setting out the modalities of solidarity, as required by the Security of Supply Regulation. So far, only six of the forty possible solidarity agreements have been concluded.

As regards the price of solidarity gas, Member States have agreed that Member States benefiting from solidarity would cover the market price of gas, in addition to procedural or arbitration costs and other indirect costs, including reimbursement of financial or other damage resulting from the restriction of electricity load to customers, provided that they do not exceed 100% of the price of gas. If they do so, Member States may ask the Commission to decide whether higher compensation is considered appropriate.

Context and next steps

The Regulation should be formally adopted by the Council, together with an agreement on the proposed market correction mechanism, at the next extraordinary meeting of the Energy Council. The Commission presented this proposal on 18 October under Article 122, which is designed for emergency situations. The proposal responds to the conclusions of the European Council of 20 and 21 October.

Source: European Council