Brussels, Dusseldorf Joint procurement of gas at European level could start later than planned. The General Court of the European Union has ruled that the contract to set up the procurement platform cannot be awarded at this time. The decision is exclusively before the Handelsblatt.
The EU Commission is faced with a lawsuit that aims to have the previous tender canceled and restarted. The Commission has not made the tender for the procurement platform public, which is only foreseen under special conditions such as “extreme urgency”.
As a result, not all interested companies could apply. The plaintiff argues that there was no unforeseen event that would create an extreme urgency. The EU Commission has been working on bundling the gas requirements of its companies since March 2022. Since then, she could have taken care of the tender, according to the plaintiff.
“The Commission is convinced of the legality of its actions,” a spokeswoman for the Brussels authority told Handelsblatt. The order will be placed as soon as possible. The Commission argued to the court that “immediate and incomparable” damage to the EU and its citizens could be expected if the court does not quickly overturn its decision.
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The plaintiff is the company Enmacc from Munich, which operates an over-the-counter gas trading platform and would have liked to apply for the order. “We are convinced that we can deliver what the Commission is looking for faster and better than anyone else,” said Managing Director Jens Hartmann of the Handelsblatt.
Cartel against excessive prices
With the new trading platform, the EU wants to avoid a repeat of the disaster of 2022. At that time, the EU countries were under pressure to fill their gas storage facilities as quickly as possible. They fought over every cubic meter that was offered, driving up prices. The stock market price for gas has quadrupled within six weeks. In August it briefly exceeded 300 euros per megawatt hour.
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Although the supply situation has eased, a shortage in the future is far from impossible: in 2022 there was still a lot of Russian gas stored in the storage facilities, and Gazprom delivered large quantities of it until the summer. It is not yet clear whether this can be completely replaced by liquefied natural gas purchases in 2023.
“We could be confronted with a potential deficit of almost 30 billion cubic meters of natural gas next year,” said Commission President Ursula von der Leyen just before Christmas. “By realizing joint gas purchasing, we will use the economic and political weight of the EU to secure the supply of our citizens and industry.”
Even in the event of a shortage, Europeans should not have to pay moon prices for gas. That is why the EU is forcing gas buyers to form a cartel. They are supposed to buy part of the gas via a joint electronic platform that bundles the needs of the many buyers into large tenders.
As a result, there are no longer many European companies bidding on an LNG delivery, but many LNG suppliers are submitting bids for a few common European demand packages. This is how the price should be pushed down.
Algorithm plays crucial role
It is this platform that the Commission may have misadvertised as operating. On November 30, 2022, the commission sent out the advertisement to potential applicants.
The 40-page document specifies what is required. At its core is a computer system in which traders can enter their gas requirements and which uses an algorithm to bundle the quantities requested into sensible packages.
This algorithm could become the crucial point for the success of the platform: only if the demand packages it generates are attractive enough on the world market will the sellers be interested in them.
In addition, there are requirements in the tender for the processing of commercial transactions, for IT security and an obligation to report and document. “A lot of things in this tender are not very specific,” says Hartmann. “It would be all the more important that different applicants can present their concept of a trading platform to the Commission. We have tried in vain to work together constructively. Unfortunately, the only option left to us was legal action.”
Lawyers who are not connected to Hartmann have also expressed doubts about the Commission’s actions. “Extreme urgency is very often used as an excuse not to have to advertise publicly,” says public procurement law expert Bettina Tugendreich from the Raue law firm. “But in my experience, that hardly ever withstands a legal scrutiny by the courts.” The energy lawyer Martin Riedel from the law firm Aecoute says: “Generally, plaintiffs have great chances of success when they take action against such non-public tenders.”
According to the law, the gas storage tanks must be 90 percent full by autumn 2023. At least 15 percent of the quantity required for this is to be purchased via the new platform. In any case, it should be gas volumes worth many billions of euros that are sold via the system.
Relevant for the hydrogen economy of the future
The companies can voluntarily buy more gas via the platform. But even 15 percent can have a decisive effect on the market. More than half of the gas comes to the EU under long-term contracts. So the 15 percent probably represents at least a third of the short-term traded quantity. If the price for these quantities is pushed down, the prices quoted for short-term trades on other trading venues also drop.
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This in turn would have an effect on the long-term agreed deliveries. The prices for these deliveries are often linked to stock market prices.
It is still unclear whether the platform will continue to be used after 2023, but it is not entirely unlikely. Energy experts recommend organizing the purchase of hydrogen at European level. “Perhaps the course for the future will be set here,” says Hartmann. “Then it would be all the more unfair that not all competitors have the chance to get the contract because the EU Commission has unnecessarily chosen a non-transparent procedure.”
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