EU Strategy on Gas Pricing and the Future of EU Gas Supply Agreements

As reported in our previous article “Gas Pricing and the Future of EU Gas Supply Agreements” (Law-Now, 19 March 2015), the EU was considering granting the EU Commission a formal role in vetting and overseeing commercial gas supply agreements before they are entered into by the parties. While further detail is emerging on the role of the proposed “Energy Union”, there is, as yet, no formal agreement to empower the EU Commission to vet the gas supply agreements prior to execution.

“Energy Union”

On 19 March 2015, the EU Council agreed to establish the EU “Energy Union” to promote transparency and EU law compliance in relation to gas supply agreements. However, the EU Council is yet to provide specific details of the powers of the Energy Union and how it will operate alongside the EU Commission and other EU institutions in regulating and overseeing the functioning of the EU gas market and ensuring the compliance of all gas supply agreements with EU law.

The EU Council’s intention is that a legal framework will be created to enable the Energy Union to ensure “full compliance with EU law of all agreements related to the buying of gas from external suppliers, notably by reinforcing transparency of such agreements and compatibility with EU energy security provisions”. To this end, the EU member states have agreed to coordinate and cooperate with the EU institutions to ensure that the gas supply agreements are in compliance with EU law.

According to a EU Council communique, the Energy Union will work towards “fully implementing and rigorously enforcing existing energy legislation”. Once implemented, the Energy Union framework is intended to provide greater transparency in the EU gas market and to regulate the conduct of gas suppliers such that suppliers cannot abuse their market position.

Crucially, the EU leaders agreed to allow the member states to maintain the confidentiality of commercially sensitive information in their gas supply agreements. Further, the EU member states agreed to assess “options for voluntary aggregation mechanisms in full compliance with WTO and EU competition rules”.

Comment

The implications of Energy Union for existing and new gas sales agreements remain far from clear. The industry will be watching with keen interest the development of regulation on the oversight and veto rights in respect of gas supply arrangements.

One challenge for the Energy Union will be that, while the EU continues to pursue its vision of a liberalised and fully functioning energy market, regional disparities in sources of supply and transportation infrastructure mean that progress towards transparency and liberalisation continues to move at differing paces across the geography of the EU.

In the interim, gas supply agreements in parts of the EU where liberalisation is yet to result in a competitive market will continue to be regulated by a mix of the commercial or political power of counterparties, competition investigations from the EU Commission and international gas pricing arbitrations, which have, to date, proven a mixed blessing for many of the companies involved.