The EU must step up collective gas purchasing to stabilize prices

The Draghi report calls for a more coordinated EU gas purchasing strategy to reduce exposure to spot prices and curb speculation on gas markets.

Share:

Commission européenne et drapeaux européens

The European Union needs to step up its efforts to consolidate its collective gas purchasing power in order to reduce the impact of price volatility on its economies.
In a report commissioned by the European Commission, former Italian Prime Minister Mario Draghi highlights the inadequacy of the EU’s current mechanisms for dealing with the growing instability of gas markets.
Europe, the world’s leading importer of natural gas and LNG, is not capitalizing sufficiently on its position to influence prices and avoid economic shocks.
The report points out that the EU remains excessively exposed to spot markets, where prices are dictated by fluctuations in supply and demand.
This increases the financial risks for member states and companies.
Draghi recommends strengthening joint purchasing, particularly for LNG, and diversifying sources of supply through long-term partnerships with reliable suppliers.

Limits of Current Mechanisms

In 2022, faced with soaring gas prices, the EU set up the AggregateEU mechanism to coordinate demand and aggregate competitive supply offers.
However, member states’ participation in this platform remains voluntary, which limits its effectiveness.
The report warns against the lack of intra-European coordination, which contributed to “unnecessary” price inflation during the energy crisis.
The lack of a coherent strategy has also left the EU vulnerable to the increased volatility of LNG, which is more expensive than pipeline gas due to liquefaction and transportation costs.
European gas prices peaked in 2022, with the benchmark Dutch TTF price peaking at EUR 319.98/MWh in August.
This situation has been exacerbated by strong competition on the spot market for limited supplies, particularly following the reduction in Russian pipeline gas imports.
With the planned development of new LNG capacity, notably in the USA and Qatar, some tensions may ease, but the report stresses that the EU must prepare for long-term challenges.

Regulating Markets and Reducing Speculation

To reduce gas price volatility, the Draghi report proposes stricter regulation of energy-related financial markets.
Inspired by the US example, such regulation could include financial position limits and dynamic caps to avoid price distortions.
The report also calls for the creation of a common regulatory framework for spot and derivative gas markets in Europe, ensuring integrated supervision.
The lack of coordinated regulation has allowed some companies to take speculative positions on derivatives markets, amplifying price fluctuations.
According to data from the European Securities Markets Agency (ESMA), five companies held around 60% of positions on certain markets in 2022, a concentration that has fuelled market instability.
By imposing stricter rules and removing certain exemptions for non-financial companies, the EU could better control the negative impacts of these practices.

Towards a coherent European Gas Policy

The EU needs to adopt a more proactive and strategic approach to its gas supplies.
This includes not only better management of joint purchases, but also reducing dependence on spot markets, which are heavily influenced by demand dynamics in Asia.
Diversifying sources of supply and concluding long-term contracts with stable partners are crucial to strengthening Europe’s energy resilience.
The Draghi report also calls for the harmonization of trading rules and increased monitoring of energy markets to avoid speculative behavior, which increases the risks for the European economy.
An integrated European gas market, supported by coherent policies and rigorous regulation, is essential to ensure price stability and secure energy supplies in the medium and long term.

Italian group Eni signs a twenty-year liquefied natural gas supply contract with US-based Venture Global, covering two mn tonnes per year and marking a first for the company from the United States.
The discovery of the Gajajeira field marks a major step for Angola, strengthening its natural gas development strategy and diversifying national energy resources in a context of sector transition.
The Voskhod vessel, under US sanctions, docked at the Arctic LNG 2 plant in Russia, marking the second visit by a sanctioned ship to the site this year, according to maritime tracking data.
Japan has urgently secured several additional cargoes of liquefied natural gas from the United States to avert an imminent electricity supply shortage caused by rapidly declining national reserves expected at the end of July.
The European Commission has unveiled a proposal to prohibit the import of Russian gas into the Union, sparking intense debate on its feasibility, contractual impact and consequences for supply security among several Member States.
CNOOC Limited announces the discovery of a significant oil and gas reservoir in the buried hills of the Beibu Gulf, opening new opportunities for shallow water exploration off the coast of China.
TotalEnergies’ Mozambique LNG gas project is at the centre of a legal challenge in Washington, following the approval of a $4.7 bn loan by the US Exim Bank, amid security concerns and opposition from civil society groups.
Investors are closely watching U.S. midstream companies’ announcements regarding new gas pipeline expansions targeting promising markets in the West and Northeast, beyond traditional regions in Texas and the Southeast.
PPL Corporation and Blackstone Infrastructure announce a strategic partnership to develop new gas-fired power plants to supply electricity to data centers through long-term contracts in Pennsylvania.
Falcon Oil & Gas Ltd announces a new record initial flow test result at the Shenandoah S2-2H ST1 well and the start of its 2025 drilling campaign in the Beetaloo Basin.
Technip Energies has secured a contract to lead preparatory works for a floating liquefied natural gas unit in Africa, confirming its presence in the international gas infrastructure market.
The Slovak government is seeking guarantees from the European Union to secure its supplies as talks continue over ending Russian gas and adopting a new round of sanctions.
ArcLight Capital Partners announces the acquisition of Middletown Energy Center, a combined-cycle natural gas power plant, aimed at meeting the substantial rise in energy demand from data centers and digital infrastructure in Ohio.
The commissioning of LNG Canada, the first major Canadian liquefied natural gas export facility led by Shell, has not yet triggered the anticipated rise in natural gas prices in western Canada, still facing persistent oversupply.
Horizon Petroleum Ltd. is advancing towards the production launch of the Lachowice 7 gas well in Poland, having secured necessary permits and completed preliminary works to commence operations as early as next August.
European Union member states have requested to keep their national strategies for phasing out Russian gas by 2027 confidential, citing security concerns and market disruption risks, according to a document revealed by Reuters.
TotalEnergies becomes a member of PJM Interconnection, expanding its trading capabilities in North America's largest wholesale electricity market. The decision strengthens the company's presence in the United States.
Turkey has connected its gas grid to Syria’s and plans to begin supplying gas for power generation in the coming weeks, according to Turkish Energy Minister Alparslan Bayraktar.
Despite record electricity demand, China sees no significant increase in LNG purchases due to high prices and available alternative supplies.
US natural gas production and consumption are expected to reach record highs in 2025, before slightly declining the following year, according to the latest forecasts from the US Energy Information Administration.