It is necessary to admire progress of the European Union in decrease in demand for gas and increases of power safety. Whether a joke, a heating season safely came to the end, the delightful plan of decrease in demand for gas is implemented and exceeded, and EU countries began joint purchase of natural gas.

It was suggested to join procedure to all international suppliers except Russia. And this step, certainly, emphasizes once again great wisdom of the management which sat down at Brussels and the deepest understanding of the regularities operating in the gas market by European Commission.

Plan for 118%

It is time to recognize our mistake which forced to enter you, dear readers, into delusion. Namely, we wrote about enormous problems of the European gas market. For example, in the first quarter of last year the European Union presented the preliminary plan of decrease in demand for the Russian gas. And we dared to suspect that the key parameter of this plan, namely decrease in demand volume (50 billion cubic meters), is chosen not incidentally that it considers the consumption falling from the second half of 2021. That is we in our great delusion considered that 50 billion cubic meters are more than the real volume of decline in demand which waits for the EU in 2022, considering the failed indicators of the industry, and also the collecting economy in a segment of households.

Moreover, we persisted in the delusion. So, in the middle of last year the European Commission declared that developed the plan according to which consumption of gas has to be reduced during the period since August 1, 2022 till March 31, 2023 by 15% of average values for this period for the last five years. It seemed suspicious to us that the European Commission put reduction which actually had already been reached by that moment in the plan. We had the audacity to suspect respected European leaders of thinly veiled hypocrisy, managerial helplessness and attempts to make a good face at a bad game. In other words, it seemed to us as if the plan offered to realization was necessary only to cover inability of Brussels to cope with consequences of an energy crisis. And for the same reason action of this plan was prolonged till March 3, 2024. Oh, how wrong we were!
Our natural suspiciousness did not allow us to see the main thing: plans of the European Union were amazingly effective, and they worked even not for 100 but for 118%!

Decline in demand is not decline in demand

All reputable Eurostat helped us to open eyes on our wrongfulness which at the beginning of May, 2023 summed up the gas results of the European Union for 2022. Impartial Eurostat writes: «It is important to note that the resolution of Council (EU) 2022/1369 about the coordinated measures for reduction of demand for gas, being a part of the plan of REPowerEU for the termination of dependence of the European Union on the Russian fossil fuel, established a target indicator of reduction for 15% for the period from August, 2022 to March, 2023 in comparison with an average value for the same period of five previous years in a row and it caused demand reduction which is visible from the presented data».

Further Eurostat specifies that during the period since August, 2022 till March, 2023 consumption of natural gas in the European Union decreased by 17,7% (in comparison with average consumption of gas for the same period from 2017 to 2022). In other words, it is ahead of schedule for 18%!

Actually impartial statistical body of the EU claims that decline in demand is not decline in demand, but controlled decrease for fight against crisis. We already noted that the European Union leaders desperately try to pretend as if problems in the gas market entrusted to it began not in 2021 that these problems are not a part of universal crisis which covered all continents (from Australia to North America), and that gas crisis began in Europe on February 24, 2022.
If to reject the irony arising because of absurd of the explanations used by Eurostat, we cannot but provide the wide quote from our last year’s article «Self-deception of Gas Independence»: «In the second quarter [2022] decline in demand for gas in Europe proceeded. So, in April and May, 2021 <…> The European Union consumed about 64 billion cubic meters of gas, and for the similar period of the current [2022] years – 53.2 billion cubic meters. If the decline continues in the second half of the year, demand in the European Union, Great Britain and Norway may fall below the level of the failed 2020 and amount to less than 440 billion cubic meters. That is there will be a reduction for 10-11% (approximately on 50 billion cubic meters). For the first six months of 2022 consumption of natural gas in Europe fell to 27 billion cubic meters».

Certainly, our expectations were excessively modest — actually Europe reduced demand for 70 billion cubic meters, according to the International power agency from which on the European Union, according to Eurostat, accounted for about 55 billion cubic meters. But the essence of this does not change: a record drop was already seen in the first quarter of 2022, when total demand decreased by 7% (relative to the successful first quarter of 2021, during which gas consumption actively increased). And if to take only the industrial segment, more than the eloquent collapse during the same period made about 20%.

Actually, the industry is the most affected by crisis consumer. And even the current rather low price level does not lead to fast reanimation of the productions which were injured in the last two years.
Data of Eurostat on decline in demand for gas in the different European Union countries are very characteristic. If to take three countries with the highest consumption level, in Germany this indicator fell to 15.4%, in Italy — for 9.9%, in France — for 9.6%. However, the greatest falling in relative sizes was shown by Finland (47.2%), Sweden (42.9%) and Latvia (29.3%). However there were also irresponsible European Union countries which increased demand: Ireland (2.1%) and Malta (1.4%).

We will not ask mocking questions like: how is it that the drop in demand was controlled, that it went according to the plan of the European Commission, and consumption changed so unevenly depending on the country? Let’s simply note that, according to Eurostat, domestic demand for natural gas in the EU in 2022 decreased by 13.2% in comparison with 2021.
The power industry appeared the only segment which showed increase in demand for gas. If in 2021 gas power plants of the European Union made 432.33 TVT · h, in 2022 this indicator even increased a little – 435.98 TVT · h. Besides total development of the European power plants fell to 97.41 TVT · h. In the first quarter of 2023 production of electric energy from gas was reduced (from 125.2 to 102.86 TVT · h). It is explained at once by three factors: the increased wind power generation productivity, warm weather and fallen (on 36 TVT · h) demand for electric energy.

And how can we not mention here production and import in the European Union? According to Eurostat, internal production of natural gas in the EU continued to be reduced — by 7.2% in 2022 in comparison with 2021 (approximately to 40-43 billion cubic meters). About 37% of this volume provided the Netherlands, but the largest reduction of production (15.6%) also was a share of them.
Cumulative import of natural gas to the EU was also reduced — by 6.6%. Norway provided about a quarter of the imported volumes, Russia – 15.3%, having reduced a share by 8.3 percentage points (items). About 9.8% of the natural gas delivered from abroad arrived from the United States (growth of a share by 5.5 items). Algeria provided 8.3%, Qatar – 6.7%. It is interesting that Nigeria, on which in the first half of 2022 some hopes were laid, not only did not increase delivery but even reduced them. Though it is insignificant — its share decreased by 0.3 items.

What’s the problem?

And what exactly is the problem? If the European Union was able to survive the winter safely, if the dropped Russian supplies were replaced by supplies from other regions, then it means that the Europeans are doing everything right. Yes, their consumption has collapsed, yes, their own production has decreased, yes, total imports have fallen, but in general, the economy is working, energy resources are getting cheaper, there seems to be no shortage of supply.
And is last year’s decline in demand so terrible? Here, even Eurostat specifies that result of 2022 only the third for the last 15 years as consumption in 2012 and 2014 was much lower. In any case, if you believe the Eurostat sample of 2023. These data somewhat contradict the statistics published by BP.

But in this case we do not consider this contradiction as basic. After all decline in demand for gas in the European Union (then still including Great Britain in the structure) at the beginning of 2010 years was valid. It occurred under influence of both weather factors and consequences of an economic crisis of the end of the 2000th. Also consumption of gas was reduced because of growth of rated capacity solar and the wind farms which got priority access to networks.
It is remarkable that just in 2011 there was a surge in input of the generating capacities working at renewables. It was followed by decrease in rated capacity of coal and nuclear power plants that led to restoration of loading of gas generation which reached peak in 2019 when output of «gas» electricity more than twice exceeded indicators of 2015.

So about what tells Eurostat when refers to low level of demand in former years? Taking into account that that loading of gas power plants did not suffer in 2022, it recognizes decline in demand unknown before in the industry and a segment of households. That is, trying to calm, it speaks about crisis which in Europe was not at least the last 50 years.

Nevertheless, we are ready to agree that Europe has successfully survived the winter (in order not to survive it, it should have been very unlucky), and prices have decreased. Moreover, we will notice that, if not the policy of the European Union assuming thoughtless pumping gas in underground storages (UGS) at the end of summer of last year, then the EU market would not be under excessive pressure and average annual prices would be lower. Perhaps, it even would support separate industrial enterprises which could not work at madly expensive gas.

However, if not this pumping natural gas which inflated the prices to $3 thousand per 1 thousand CBM, total demand in the European Union and volumes of import would be even lower. And now there would be no surplus in UGS that would boost consumption and with it prices.

And if the average gas prices in the European Union were lower than those observed in the second half of 2022, probably a significant part of liquefied natural gas (LNG) would go to

Actually, «progress» of Europe on replacement of deliveries from Russia is based on two factors: the fallen demand and high prices which attracted additional volumes of LNG. And on such unsteady basis it is impossible to build strategy even on medium-term prospect.

For this reason the European politicians should pretend as if anybody is not guilty of problems of their market, except Russia. It allows Brussels to decline all responsibility for problems in economy with which talented managers are not capable to cope. But at the same time this approach deprives the European Union of opportunity to comprehend an event: to define the crisis reasons, truly to estimate a role of the EU as the consumer, to find weak spots in architecture of the European gas market. In other words, while heads of the European Union and their subordinates profess ostrich’s approach to a crisis assessment, they will be incapable to learn from it necessary lessons. And it means that root problems will not be fixed, weak places will not be closed and crisis with all inevitability will repeat. This is where we see the problem.

But, perhaps, we are wrong and Brussels learned necessary lessons. Perhaps, exactly thanks to it there was an Aggregateu mechanism.

Solidary purchases

«I am glad to tell you that today the Commission started the first international tender for joint purchases of gas within the Power platform of the EU. It is a historical milestone because for the first time in the history we use the collective economic weight of the EU for increase of our energy security and fight against the high prices of gas. Reaction of the market was positive and encouraging», — the Deputy Head of European Commission Marosh Shefchovich declared on May 10, 2023.

It was a historic day for the European Union, to which it had been moving for more than a year. At first there were timid offers to EU countries to stand together in the gas market. The idea was simple: now all European consumers are separated therefore they cannot dictate the terms to suppliers and as soon as they unite in the general bundle, suppliers will have nowhere to go.
Thus nobody refused an idea that the European Union is the market of the buyer to which sellers are torn, pushing each other with elbows. This simple thought was the cornerstone of the reforms coordinated and started in the energy markets of Europe at the end of the 2000s. The EU tried to simplify as much as possible access to potential suppliers and to put pricing into dependence on exchange quotations. Gradually oil binding was abolished and in long-term gas contracts. But happiness did not come.

It turned out Europe is only one of many players. Yes, large, but inferior to Asia. It is a fundamental mistake to consider that the European market in a separation from Asian, besides the level of the gas prices in the EU is in direct dependence on sharply changing external environment.

But if reality does not correspond to your ideas about it, it is so much the worse for reality. Actually, the system of joint purchases is the lesson which is not learned during crisis, and it is rather an attempt to adjust reality under the ideas of it. After all it does not change essentially developed system which made the European Union the most vulnerable for an energy crisis industrially developed region.
The new mechanism of the European Union which allows to aggregate demand and to carry out joint purchases of gas at the European level was called AggregateEU. Actually it arose after adoption in December, 2022, «Regulations of solidarity» (the resolution of the Council of Europe 2022/2576). The European Commission quite expectedly submitted it as part of the European tools on overcoming of an energy crisis which had to provide the so-called equal treatment of gas and eliminate market manipulation.

Monthly rounds of the auction have to be organized in the frames of AggregateEU. Both enterprises from the European Union and the companies from the countries of Power community can participate as buyers and as sellers — reliable international suppliers. That is any suppliers both from the European Union and beyond its limits, except Russia. Russian players are legally excluded from the list of reliable ones. It would be possible to joke bitterly that this required a terrorist attack on the «Northern Streams». But we won’t. The most interesting question is: what volume is protected by the mechanism of joint purchases? For the states of the European Union there is a requirement to provide a certain quantity of raw materials for «demand aggregation», it is equivalent 15% of their obligations according to Regulations (EU) 2017/1938 about gas storages. That is no more than 16.5 billion cubic meters a year. All, what is beyond this amount is voluntary and depends only on the needs of the participants. The Aggregate mechanism is managed by the service provider that Prisma has become European Capacity Platform GmbH, based in Leipzig (Germany).

Isn’t this another marketplace?

Among the frequently asked questions that the EU leadership tried to answer about the joint procurement system was the following: «What are the advantages of buying gas through Aggregate? Isn’t this another marketplace (hub)?» Actually, the question is quite reasonable. After all there is a set of gas hubs in the territory of the European Union on which trade is carried out. The general situation does not change because you created a certain pad between the buyer and the seller.

What is being written about this on behalf of the European Commission? «AggregateEU offers a new opportunity for purchase of gas in addition to the existing markets or practices. <…> The system can bring special benefit <…> to the small companies or the companies in the countries which do not have an outlet to the sea which could benefit by demand aggregation, considering the amount of their consumption or lack of experience of the conclusion of contracts at them for the liquefied natural gas».

That is yes, it «one more hub» which is necessary to those companies which for any reason cannot come to the existing trading floors, buy there gas and pay its delivery within the available procedures which the European officials were not tired calling clear and transparent. And now, it seems that some kind of intermediary is needed so that a small gas company can take advantage of all the advantages of a convenient and transparent EU market. At last May, 2023 when the European Union countries began the first procedure of joint purchases of gas which loudly and very pathetic the Deputy Head of European Commission Marosh Shefchovich declared came. 63 companies (out of 110 participants of the AggregateEU platform) submitted applications from buyers, who in total wanted to purchase 11.6 billion cubic meters in the period from June 2023 to May 2024.

There is an involuntary wish to suspect the European officials of excess naivety, namely that it seems to them as if, having united six tens buyers, they will cope with shortage of the offer. If to pour not 60 thimbles, but one scoop into a half-empty barrel, then there will be much more water in the barrel!

But all doubts and sneers broke about result on which Marosh Shefchovich reported on May 16. According to him, in general 25 sellers of gas offered 13.4 billion cubic meters instead of required 11.6 billion cubic meters!

«It is no other than outstanding success. It shows that we were right, having united our requirements, using the collective force of an attraction of Europe and working together to fill our gas storages by next winter», — the Deputy Head of European Commission bragged.

About 20% of the provided volumes fell on LNG, 80% — on pipeline gas. Marosh Shefchovich especially noted that the requested volumes especially positively corresponded to the offer «in the most vulnerable countries». So, by his assessment, the supply of gas requested by Bulgaria was completely coordinated. Moldova agreed on them by 80%, and Ukraine (from which Naftogaz acted) – by 100%. There is, however, one «but» which cannot be ignored. And no, we are not talking about the insignificance of the requested volumes, taking into account the number of buyers and delivery times. We are about the fact that the operator of system, the Prisma platform, selected «the most attractive offers», which met the requirements of clients and the volume declared from sellers instantly dried out to 10.9 billion cubic meters – 0.7 billion cubic meters less than the required.

What can I say here? Probably, it is necessary only to quote Marosh Shefchovich: «It is excellent result for the tool which did not exist about five months ago». Certainly, the excellent result for the tool which does not solve a problem of shortage of the offer, which it will not be possible to fully cope with on a global scale until 2025. Besides that the European Union aggravates the situation, breaking links with the Russian suppliers. As note the European sources, there are no large importers on the AggregateEU platform so far, and there is no more gas on the scale of Europe. There is a usual redistribution between platforms. In the second half of June the second purchase, and then — three more until the end of the year will be carried out. Fortunately, the European Commission does not expect restoration of demand for gas in the EU to the first half of 2024.

Already today the following is obvious: if gas does not start rising in price suddenly in the summer of this year, then by the heating season, the European Commission will declare that the system of joint purchases worked perfectly and allowed to bring down prices. If the prices grow, European Commission will declare that the system of joint purchases worked perfectly as it would not be succeeded to save up so successfully volumes to a heating season without it. In general, no matter how events develop, joint purchases within Aggregate are doomed to success.