EU bolsters defenses against energy crunch

Measures for joint purchases, price stability proposed as winter looms

The European Commission proposed on Tuesday measures to enable joint purchases of energy among the member states and keep a lid on prices in emergency cases in an effort to better withstand a looming energy crisis in Europe.

Commission President Ursula von der Leyen said that the European Union has been working hard over the past month to limit the fallout from disruptions in energy markets following the outbreak of the Russia-Ukraine conflict in February. The chief of the bloc's executive arm said progress has been made, as she cited achievements in energy savings, gas storage, and efforts to find new suppliers, as well as the solidarity prevailing among the member states.

"Now we can tackle excessive and volatile prices with more security," von der Leyen told a news conference on Tuesday.

"We will introduce a temporary mechanism to limit excessive prices this winter, while we develop a new benchmark so that LNG (liquefied natural gas) will be traded at a fairer price.

"We provide legal tools for joint EU purchasing of gas, ensure solidarity in the security of supply for all member states and negotiate with our reliable gas suppliers to secure gas at affordable prices."

The new measures aim to increase the EU's joint gas purchasing by asking member states to aggregate some 15 percent of their gas demand for next year. Nations could then negotiate gas deals jointly with third parties through a consortium and avoid competition for gas among them by outbidding each other on the global market, according to the commission.

The commission also hopes to create a new gas-trading benchmark for LNG by March next year and in the short term to propose a price-correction mechanism to establish a dynamic price limit for transactions on the TTF gas exchange, a virtual trading point for natural gas in the Netherlands.

Solidarity mechanism

The measures will also introduce a solidarity mechanism that can apply when critical gas-fired power plants or households risk severe shortages. Member states would have 12 hours to respond to a solidarity request from another state and three days to fulfill it in exchange for adequate compensation.

"Tools and rules that served us well before are no longer adequate to ensure secure and affordable energy supply," European Commissioner for Energy Kadri Simson said.

"We need to be able to buy gas together, to target excessively high prices, and to ensure solidarity between our member states in case of shortages," she said, adding that the proposals are necessary to "better prepare for this winter and beyond".

EU leaders will discuss the measures at a European Council summit in Brussels on Thursday.

Tuesday's proposals still fall short of the calls by some members, such as Belgium, Italy, Greece and Poland, to impose a broader price cap on all gas imports and all gas transactions.

Yan Qin, an energy market analyst at Refinitiv, said that overall the latest proposals contain good measures and initiatives to tackle the rising energy prices and ensure winter gas supplies.

"The joint gas purchase could help member states to ensure gas at more affordable prices, easing the burden," she said. "The measure of limiting gas price volatility will reduce the severe liquidity pressure in gas derivatives market and prevent the energy crisis from snowballing into a financial crisis."

But Qin noted that the proposal is a cautious one because it falls short of the more controversial measures sought by some members, the main one being the gas price cap that was supported by 15 members.

"This shows the deep divisions among European countries … and makes one wonder about how many of the commission measures can be implemented in the end," she said.

In another development, tiny amounts of gas suddenly appeared in the Nord Stream 1 pipeline on Wednesday, website data showed, weeks after the pipeline ruptured in the Baltic Sea in what investigating teams said was suspected sabotage caused by explosions.

Nord Stream's operator did not respond to a request for comment and no explanation was immediately available.

Agencies contributed to this story.