Explainer: Can Joint Gas Buying Boost Europe's Energy Security?

(Reuters) — The European Union opened a scheme this week for companies to jointly buy gas, aiming to secure supplies ahead of winter and avoid a repeat of last year's record-high energy prices.

Russia, Europe's former top gas supplier, slashed fuel deliveries to EU countries last year following its invasion of Ukraine, plunging the continent into an energy crisis as it scrambled to find alternative sources of supply.

The EU joint gas buying plan aims to help refill gas storage and shield countries against potential further supply shocks.

How Will Joint Eu Gas Buying Work?

Companies have until May 2 to register the amount of gas they want to buy through the scheme. They can request pipeline or LNG.

The EU platform will then collect offers from global suppliers to match demand. Matched suppliers and buyers will negotiate contracts, but the EU will not be involved in these commercial talks.

EU countries are required to fill gas storage to 90% by November. The scheme aims to jointly buy enough fuel to meet 15% of that obligation. It cannot be used to buy Russian gas.

EU officials said around 80 companies have registered so far, although it is not known how many have placed orders. Poland's main oil and gas firm PKN Orlen said on Wednesday it planned to take part.

Will Joint Gas Buying Improve Energy Security?

The EU is aiming to jointly buy around 13.5 billion cubic meters (Bcm) of gas initially, a fraction of total EU demand of around 360 Bcm.

RELATED: Ukraine to Jointly Buy Gas with European Union Countries

But it should help countries make a start on filling their gas storage, typically salt caverns or depleted gas fields.

Stored gas balances fluctuations in daily and seasonal demand - providing a crucial supply buffer in winter, when European gas use typically peaks. It can also offer supply during disruptions, major infrastructure outages or particularly high demand in cold spells.

Storage capacity in the EU is unevenly distributed with large facilities in France, Germany, Italy and the Netherlands, but with pipeline interconnections to neighboring countries.

EU-wide storage is now 58% full, according to Gas Infrastructure Europe data, unusually high for the time of year, after countries cut winter energy use amid soaring prices while emergency energy policies and relatively mild weather curbed demand.

The joint scheme aims to improve smaller buyers' access to gas and help them secure better deals. Buyers can place requests for relatively small volumes - down to a third of an LNG cargo - and club together to meet the minimum order volume.

Some EU officials said certain large energy firms had expressed reluctance to take part, doubting that the scheme will offer them lower prices as they can already negotiate their own gas deals.

Will It Help Avoid Price Spikes?

EU countries are responsible for their own energy policies, with different energy mixes and gas storage facilities.

Low storage levels can push up gas prices, but they are not the only cause of high costs. Europe competes with Asia for LNG supplies and there have been extended outages at some power plants including France's nuclear reactors, pushing up gas demand.

Other EU measures to tame energy prices in the last year include an obligation to curb winter energy use and proposals to reform the bloc's electricity market.

What About Britain?

Non-EU countries including Ukraine, Serbia and Albania can also take part in the joint buying scheme.

Former EU member Britain, where around 80% of homes are heated using gas, is not involved but it can receive and send pipeline gas to Europe. It has storage capacity equivalent to around four-to-five days of winter gas demand, down from 15 days since Centrica closed the Rough facility in 2017, saying that maintaining the 30-year-old plant was costly.

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