Gas cartel won’t save Europe from energy crisis

The agreement must be approved at a meeting of the EU Energy Council, and then in the Council of the Union, but the head of the Czech Ministry of Industry and Trade (presides over the EU), Josef Sikela, is sure that the discussion will not happen. Signed without discussion.

The European Commission said in a statement that “the new rules will create opportunities for EU member states and their energy companies to purchase gas jointly on global markets.” European companies will provide information on their needs. The EC will hire an intermediary who will take into account the general requests and look for proposals to meet this demand. Accordingly, “Member countries will oblige companies to use the services of this intermediary.”

At first glance, a wise decision is to create a cartel of gas consumers. By analogy with the oil alliance of oil producers OPEC. True, without any cartel this year, European underground gas storages (UGS) were filled ahead of schedule. Gas consumption was reduced by 15%, electricity – by 10%. As a result, after price peaks exceeding $3,000 per 1,000 cubic meters in late August — early September, by early December, natural gas was worth about $1,300 on the spot market.

And all this happened with a sharp drop in purchases from Gazprom. Now the Russian share in the EU gas balance does not exceed 7%. A year ago it was 40%.

But the risks of freezing right now, and then a year later, the inhabitants of the Old World remained. Forecasters predict a cold December. The gas imported daily may not be enough. UGS facilities will have to be opened, which, by the way, only 18 out of 27 EU members have. But the head of the Federal Network Agency of Germany, Klaus Müller, warns that the reserves will last a maximum of 2.5 months. In addition, gas for everyday consumption and storage will have to be purchased again in April at prices that, most likely, will never return to their previous, relatively low values. It is no coincidence that the International Energy Agency warns that the energy crisis in the 2023/2024 season may be stronger than this year.

Will the gas cartel soften the imminent crisis? Hardly. In the last 10-12 years, the European Commission in the field of energy has rushed from one extreme to another.

Hiring a gas intermediary suggests that the EU actually rejects the “invisible hand of the market.” So far, only in the energy sector. But the trouble is the beginning. And the ultra-liberal market is the basis of modern global capitalism. Russia in the West (and many experts from within) is constantly criticized for too strong positions of the state in the economy. Its share is most often estimated at 50%. But the former chairman of the Accounts Chamber of the Russian Federation, Alexei Kudrin, even spoke about 70%.

Now it turns out that the West has followed the path beaten by the East.

And what a beautiful start! All according to the recipes of the Chicago School and international financial organizations.

In 2009, the EU adopted the Third Energy Package to the Energy Charter. Brussels made no secret of the fact that the document was primarily directed against Gazprom, although, of course, it was officially about the fight against universal energy monopoly. The structures providing gas supplies were necessarily divided into parts. Some companies were only allowed to extract gas, others to transport, still others to carry out wholesale deliveries to consumers, the latter to provide gas to end consumers, including households, setting prices in a competitive struggle. And this is not the whole scheme. Pipeline companies are obliged to pump gas not from one manufacturer, but from at least two.

Thus, the Opal gas pipeline connecting Nord Stream 1 with the Czech Republic was only 50% loaded for a long time, since Gazprom could not find a competitor. Then, for a short time, Gazprom, thanks to various maneuvers, managed to fill the pipe to 100%. But not for long.

Initially, antimonopoly restrictions on gas transportation were only in effect within the EU itself. But in May 2019, the Gas Directive extended this requirement to pipelines laid outside the jurisdiction of the union, but through which gas will be pumped specifically to the EU. That is, they decided to demand from Gazprom to launch some competitor in the then-built SP-2. Otherwise, only 50% of the installed capacity can be pumped through this pipeline. And in order for us to understand the seriousness of the requirements for real gas competition, one of the lines of SP-1 was blown up on September 26.

True, all pseudo-market attempts went unevenly in the EU. Back in 2013, the government of the Netherlands was the first to report on the full implementation of the Third Energy Package. The scheme is the following. One state-owned company in Groningen only produces natural gas on the near shelf (by the way, it has too low calorific value due to many impurities), another, also state-owned, sells raw materials on the TTF stock exchange or exports them under long-term contracts. Wholesalers are already engaged in private companies, retail – even more so. The end consumer has a mega-competitive choice – you can conclude a contract by choosing from 8-10 retail suppliers and for a different period – from 3 months to 12. A real market! The Dutch were proud of the effect they had on their colleagues. But prices have only gone up.

The European Commission did not calm down on the division of the gas business. We started introducing spot prices and futures on the British exchange ICE and the Dutch platform TTF. We were sure that the unrestricted dynamics of supply and demand would lead to a decrease in quotations compared to the pricing of the oil basket. Gas prices for it are set at 90% of the average prices for oil and oil products with a time lag of 6–9 months. Long-term gas contracts (a number of them are valid until 2035) were based on the oil basket. It is easy to calculate that under this scheme, gas prices would now not exceed $300–350 per 1,000 cubic meters, and would not amount to $1,300.

German and Italian energy companies lined up in the Stockholm Arbitration to force Gazprom to shift the price formula at least partially from the basket to the spot. And they got their way. But the Poles especially went to great lengths. In March 2020, PGNiG won arbitration in Stockholm against Gazprom. The price formula was fully recalculated for the spot scheme. Then the basket was valued more. As a result, Gazprom had to return PGNiG for supplies starting from 2015 of more than $1 billion. But in 2021, the Poles paid twice as much – spot prices went up sharply.

In addition to the rejection of the country’s market competition, the EU is also saying goodbye to energy sovereignty. After the Lisbon agreements of 2009, the members of the union have already handed over foreign and defense policy to the Brussels bureaucracy, which no one has chosen anywhere. As a result, even those countries, such as Hungary, which, with greater independence from Brussels, would try to remain neutral, are drawn into the sanctions confrontation with Russia.

At the same time, it is not clear by what criteria the EC will select the gas intermediary. Which inevitably leads to corruption, which was tracked in the centralized provision of EU countries with anti-COVID vaccines. There were questions for EC President Ursula von der Leyen, who last year ordered an additional billion-dollar vaccine orders to be placed with Pfizer after just exchanging text messages with an executive at the US pharmaceutical company.

It remains to wait until suspicions arise that European officials are “protecting” joint purchases of gas.

The European Union itself tightens the energy noose, rushing from market principles to administrative ones. The formation of a consumer cartel will not save us from the energy crisis. In return, the Europeans will get a cartel of producers. Presidents Vladimir Putin and Kassym-Zhomart Tokayev recently discussed the idea of ​​creating a trilateral (Russia, Kazakhstan, Uzbekistan) gas union. And it’s time for European officials to introduce a planned economy.