Council Adopts a Broad Range of Measures to Address High Gas Prices in the EU and Ensure Security of Supply

On December 19, 2022, the Council adopted Council Regulation (EU) 2022/2576, enhancing solidarity through better coordination of gas purchases, reliable price benchmarks and exchanges of gas across borders.

The Regulation intends to provide temporary measures to mitigate the tremendous impact on the price for gas that the war in Ukraine has created.  The proposed Regulation focuses on enhanced solidarity and coordinated schemes between the Member States, to address the fragile equilibrium between demand and supply, and ensuring security of gas supply. The Commission proposal makes it clear that, notwithstanding the mechanisms, compliance with competition rules still need to be ensured. The main elements of the Regulation are the following:

• Coordination of gas purchases. The Regulation introduces a form of coordination of gas purchases through a two-step process:

First, EU gas demand aggregation: gas demand is aggregated through a service provider, which is contracted by the Commission on the basis of a pre-determined set of criteria. Demand aggregation is mandatory for 15% of national storage filling requirements (see here on EU minimum filling storage obligation).

Second, joint purchase of gas: on a voluntary basis, companies may decide to form a gas purchasing consortium in order to enter into contracts with the supplier. In particular, gas-purchasers “may, on a transparent basis, coordinate elements of the conditions of the purchase contract or use joint purchase contracts in order to achieve better conditions with their suppliers, provided they comply with [EU competition rules].”  The regulation envisages that the Commission may support the design of the consortium, issuing a decision under Article 11 of Regulation (EC) 1/2003 finding the consortium does not raise competition concerns under Article 101 and 102 TFEU.  

• Efficient use of pipelines and LNG terminals. An increase of LNG supplies also causes new routes to become more relevant than the past predominant East-West direction of pipeline flows. This could cause congestion (contractual and physical) of the existing pipelines and the EU LNG terminals. Current mechanisms to solve contractual congestion might not provide a timely answer. For this reason, the Regulation includes a definition of underutilisation “as the situation where a network user used or offered on the market less than on average 80% of the booked firm capacity in the last 30 days” and a duty for transmission system operators to publish unutilized capacity as available capacity for the next monthly auction.

• Price volatility. The Regulation imposes on trading platforms the obligation to establish a new temporary mechanism to manage intraday volatility, designed to limit large fluctuations in the prices of electricity and gas derivative contracts within the same trading day (focusing on front-month contracts). This mechanism compliment so-called “circuit breakers” put in place by trading platforms and will be supervised by the European Securities and Market Authority (ESMA).

• LNG gas prices. The Regulation makes ACER (the Agency for the Cooperation of Energy Regulators) responsible for developing a daily LNG gas price benchmark.

• Gas emergency measures. The Regulation allows Member States to adopt specific measures in case of a gas emergency.  Member States are exceptionally empowered to take measures to reduce the non-essential gas consumption of households (which are “protected consumers”) in a crisis.  Member States may only request gas from another Member State through a “solidarity measure” where they have not been able to cover essential gas use (essential household needs and gas volume needed for electricity security of supply) in their territory.  The Regulation also extends the obligation to provide solidarity measures to Member States with LNG facilities (and not only those directly connected to the Member States requesting solidarity), provided the necessary capacity in the relevant infrastructure, including the LNG vessels and carriers, is available.

The legal basis for this Regulation is Article 122(1) of the TFEU, a treaty provision that can only be used in cases of serious hardship and in compliance with the principle of  solidarity between Member States (for further details, see CLEARY ALERT MEMO: Article 122 TFEU as a Legal Basis for Energy Emergency Measures). The above additional temporary emergency instruments complement the current regulatory framework for security of gas supply, including Regulation (EU) 2017/1938 on security of gas supply, designed to address short-term supply disruptions (for further details, see CLEARY ALERT MEMO: European Council Regulation to Address High Energy Prices).