Joint gas purchasing: The AggregateEU mechanism to increase energy security for Europe

(Credit: Unsplash)

This article is brought to you in association with the European Commission.

1. What is AggregateEU and how is it linked to the EU Energy Platform?

AggregateEU is the new EU mechanism enabling demand aggregation and joint gas purchasing at the European level. It was set up following the adoption of Council Regulation (EU) 2022/2576 (the so-called “Solidarity Regulation”) which introduced EU-level gas demand aggregation and joint purchasing for the first time.

This piece of legislation was proposed by the Commission on 18 October 2022, agreed by Energy Ministers on 24 November, and formally adopted on 19 December as part of the EU’s toolkit to tackle the energy crisis. The Regulation obliges Member States to aggregate demand for volumes of gas equivalent to at least 15% of their respective storage filling obligations.

The AggregateEU mechanism is managed by a service provider contracted by the Commission, Prisma European Capacity Platform GmbH. The mechanism allows companies to aggregate their gas demand and to match it with the most competitive supply offers on the global market. AggregateEU will establish a series of tenders for suppliers, through which EU companies will be able to buy both pipeline gas and LNG from the global market, with the exclusion of Russian supplies. It will create a transparent marketplace complementing the existing trading venues to bring many companies closer to the wholesale market and possibly new entrants into the LNG market. This should represent an opportunity not only to large resellers, but will also bring smaller customers, especially in landlocked countries, closer to the regional or global gas market.

Demand aggregation and joint purchasing is one pillar of the work of the EU Energy Platform, which was created to work on the diversification of EU gas supplies after Russia invaded Ukraine and Europe collectively decided to end its dependence on Russian fossil fuel imports.

The EU Energy Platform also carries out international outreach to external energy suppliers, including for the negotiation of political commitments and regulatory conditions to increase gas supplies. It is also responsible for coordinating efficient use of EU gas infrastructure, including LNG import capacity optimisation, to avoid bottlenecks and ensure smooth gas deliveries to all Member States.

2. Who can participate in AggregateEU?

The AggregateEU mechanism aims to collect and pool gas demand from companies established in the EU or in Energy Community countries and match it with the most competitive supply offers in time for the next storage filling season. This means that aggregation of demand is open to both gas consuming and gas trading companies from all EU countries and from Energy Community contracting parties (Albania, Bosnia-Herzegovina, Georgia, Kosovo, Moldova, Montenegro, Republic of North Macedonia, Serbia, Ukraine).

To be eligible to participate in tenders, the companies must first register with the service provider, PRISMA and subscribe to the AggregateEU mechanism. Both EU and non-EU companies can participate as suppliers, with the exclusion of Russian companies.

EU Member States must ensure that local companies submit their demand for an equivalent of 15% of each Member State’s gas storage filling obligations, as set out in the gas storage regulation. However, the purchasing of gas by companies will remain entirely voluntary. Each company can participate either as a seller or as a buyer in any single tender at AggregateEU, but not both.

3. What does today’s first call to submit gas demand mean for joint purchasing and what are the next steps?

The call launched today marks an important step in the process towards joint gas purchasing, as it is the first time companies are able to submit their gas demand through an EU-level aggregation mechanism. This is instrumental to prepare jointly for next winter and make the best use of the storage filling season.

The first window to place demand to buy gas via the AggregateEU mechanism will be open until 2 May and the submitted demand volumes will subsequently be aggregated. This will be followed in mid-May by a tendering exercise to attract bids from global gas suppliers to fulfil this demand. The tenders will be organised by the AggregateEU mechanism to attract competitive supply offers. After that, EU companies will be matched with suppliers and will be able to negotiate the terms of the supply contracts.

Such tenders will happen on a regular basis, approximately every two months until the end of 2023, allowing companies each time to contract gas for the next 12 months. This will assist the EU in reaching its goal to jointly purchase 15% of its annual gas storage targets and support a timely storage refilling process ahead of the next winter season.

EU Member States must fill their gas storage facilities to 90% of their capacity by 1 November 2023. Gas storage stood at 57% on 24 April 2023.

4. Is the Commission actively involved in negotiating contracts and buying gas?

The Commission will not engage in the purchase of gas and will not own any gas. Any contracting of gas takes place outside the mechanism and supply contracts will not be signed by the Commission, nor Prisma, but rather by the companies involved. This is important to ensure confidentiality of the transactions, preserve business secrets and ensure compliance with the EU competition rules. Competition rules will apply to information exchanges taking place in the framework of joint purchasing of gas.

Commercially sensitive information should only be exchanged bilaterally between the Agent/shipper on Behalf or the Central Buyer, on the one hand, and their respective individual customers, on the other hand. These bilateral exchanges should be limited to what is necessary for the purposes of negotiating and implementing the respective gas purchase agreements.

The Commission’s role is to create the AggregateEU mechanism, design the aggregation and tendering process with the service provider PRISMA, and engage with Member States and companies to inform them and encourage their participation. The Commission will be informed of the purchasing process results with some data shared for tracking and transparency.

5. What is the added value for companies to participate in demand aggregation and joint gas purchasing?

AggregateEU offers a new opportunity to procure gas in addition to existing market places or practices, with enhanced transparency and cooperation. Participation of companies as buyers and sellers in AggregateEU will be cost-free. It is particularly valuable to smaller entities or those in landlocked countries to secure stable supplies of gas at lower prices, by gaining access to new suppliers and harnessing the EU’s collective market weight. They might benefit from demand aggregation given the size of their demand or their lack of experience in contracting LNG. In particular, this access could be achieved with the assistance of central buyers or agents on behalf who will provide support in negotiating and transporting gas supplies. For suppliers, the Platform offers a possibility of securing contracts for aggregated volumes of gas and gaining access to new markets and customers.

6. How will companies negotiate the collective purchase and delivery of supplies?

It will be for buyers and sellers to negotiate supply contracts and terms of delivery. Such negotiations will take place outside the AggregateEU mechanism and are beyond the remit of the service provider. AggregateEU only serves as a mechanism to aggregate demand, tender it and match demand with supply.

To facilitate cooperation between the companies interested in acquiring gas jointly, the Commission proposes two types of cooperation model, referred to as Central Buyer and Agent on Behalf.

A Central Buyer is a company (possibly a large gas company) agreeing to purchase gas on behalf of other companies based on a bilateral contract. In cases where an individual company requesting a certain volume does not reach the minimum threshold of 300,000 MWh for LNG and 5,000 MWh for pipeline gas  and/or does not have the necessary creditworthiness and expertise in negotiating and concluding purchase contracts, it can choose to cooperate with other buyers and place a joint demand bid through a Central Buyer.

An Agent on Behalf can provide complementary services to companies that have already negotiated directly with a supplier to buy a certain volume of gas. For example, an Agent on Behalf may provide services such as reservation of a delivery slot at an LNG terminal, transport from a ship to a point of consumption, or balancing services to companies that do not have the ability or the licenses to do so. In this case, companies that have concluded supply contracts with the support of the AggregateEU mechanism may want to entrust another company, likely a mid-stream operator, to provide these services so that the gas is delivered where it is needed.

PRISMA, the service provider of AggregateEU, has invited companies to express their interest in acting as a Central Buyer or Agent on Behalf. The list of such companies – so far 11 – has been published on the AggregateEU website. Companies willing to participate in the joint purchasing of gas with the support of a Central Buyer or Agent on Behalf may contact one of the companies listed on the AggregateEU website.

Cooperating with other companies is not mandatory, but it is an option that is available and aims to facilitate the purchase and delivery of gas that flows from the demand aggregation process. The two above-mentioned models are not exclusive, as there may be other forms of cooperation achieving the same objective. Companies may also contract a Central Buyer or an Agent on Behalf that is not listed on AggregateEU.

7. How will compliance with EU competition rules be ensured?

Participating companies need to ensure that the joint purchasing mechanism is compliant with the EU competition rules.

Commercially sensitive information should only be exchanged bilaterally between the companies offering the services as Agent on Behalf and Central Buyer and their individual customers, and this bilateral exchange should be limited to what is necessary for the purposes of negotiating and implementing the respective agreements. Commercially sensitive information exchanged in this context can be considered necessary if the companies concerned can explain how it relates to the agreement they are negotiating, why it needs to be exchanged and why it would be proportionate to the objective of the agreement.

If the companies offering the service as Agent on Behalf and Central Buyer are operating in the same market as one of their customers, they need to make sure that access to commercially sensitive information obtained from their customers for the purposes of carrying out their function as Agent on Behalf and Central Buyer is limited to staff dedicated to this function, and that such information is not shared with any other staff within the company.

The Commission stands ready to assist interested companies through informal guidance, including a guidance letter under the Commission Notice on informal guidance relating to novel or unresolved questions concerning Articles 101 and 102 of the Treaty on the Functioning of the European Union that arise in individual cases (guidance letters) 2022/C 381/07 and based on a reasoned request pursuant to paragraphs 10 to 12 of said Notice.

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