EU countries plan joint deals for gas

"Instead of outbidding each other and driving up prices, we will pool our demand."

— Ursula von der Leyen, European Commission President

European Union countries have agreed to jointly buy and store gas, hydrogen and liquefied natural gas to address the challenge of reducing energy dependence on Russia while protecting Europeans from rising energy costs. They did not impose a ceiling on energy prices, however.

European leaders announced the decision Friday after a series of summits Thursday, when they met alongside NATO and the Group of 7 industrialized nations, and were joined by President Joe Biden.

Willing EU members can team up and jointly negotiate gas purchases, increasing their bargaining power with the hope of influencing energy prices. Ukraine, Georgia and Moldova, as well as countries of the western Balkans, can join the collective gas purchasing.

Storage capacity can be shared so that all EU nations are prepared with sufficient supplies for next winter. Leaders also endorsed a proposal by the European Commission, the bloc’s executive arm, to fill up 80% of their underground storage facilities by November, and 90% by 2023, requiring mass purchases in the coming months.

That would be a big jump from current storage levels, now about 25%, commission officials said.

Ursula von der Leyen, the commission president, said 75% of the global pipeline gas market was European.

“We will now use our collective bargaining power,” von der Leyen told reporters Friday evening. “Instead of outbidding each other and driving up prices, we will pool our demand.”

Although the bloc as a whole is heavily reliant on Russia — which provides nearly 40% of the EU’s natural gas and more than 25% of its crude oil — the energy mixes and interests of individual countries vary.

Because of the pandemic demands, energy prices had already been rising since October, and the bloc’s vulnerability has been further exposed by the Russian invasion of Ukraine. Unlike the United States, Europe has refrained from an embargo on Russian gas and oil, although it has imposed other sweeping sanctions.

A coalition of southern European nations, led by Spain and Italy, advocated capping energy prices across the bloc, arguing that such a measure would protect households and companies. But the Netherlands and Germany strongly opposed that idea, which they said would distort market dynamics and ultimately benefit Russian energy producers. On Friday, European leaders agreed to continue discussing if and how short-term measures such as price controls could be effective.

Earlier Friday, the U.S. announced that it would help the bloc secure an additional 15 billion cubic meters of liquefied natural gas by year’s end.

In the past months, the commission has been reaching out to several gas producers — including the U.S., Qatar, Azerbaijan, Nigeria and Egypt — and importers like Japan and South Korea to see whether they could redirect some of their supplies to Europe.

“The market is tight,” said Simone Tagliapietra of Bruegel, an economic think tank in Brussels. “We learned from the pandemic that when the European Union moves together, it can be much more efficient than individual countries,” he added, referring to the bloc’s joint purchase of covid-19 vaccines.

In the short term, Europe will have to compete with other buyers around the world, including China, and if its member nations move together, they will have more bargaining power, experts said.

“We are effectively in a war economy,” Tagliapietra said. “Politics is taking over many economic decisions. In extraordinary times, we need extraordinary measures.”