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The European Union will make its first move as a buyers’ group on the international gas market next month as it launches the first tender for suppliers.
The tender follows months of discussions on how best to secure natural gas supplies for the 27-member bloc in such a way as to avoid some member states outbid other member states because of their deeper pockets.
The solution was found in what would effectively be a buyers’ cartel, shopping for gas as one. According to Bloomberg, the first offers, from gas suppliers in the United States, the Middle East, and Africa are to be signed in June.
Price will be the sticking point in that joint buying exercise. One of the purposes of the whole endeavor was to keep gas prices low by buying in larger volumes. Besides, natural gas prices are currently a lot lower than they were a year ago. Yet the EU needs to buy a lot of gas and such bulk buying may very well push prices higher.
The total gas needs of the EU plus four neighboring countries amount to 24 billion cubic meters over the next three years, according to European Commission Vice President Maros Sefcovic. This is a lot of gas to be sourced on the global spot market.
“We clearly need to turn the economic tide in Europe,” Sefcovic told Bloomberg in an interview.
“I believe we’re creating a new system that will increase competition and bring in new suppliers and push energy prices down. Since we started this exercise, there’s enormous interest from international suppliers.”
According to him, some 50 gas suppliers have expressed interest in participating in the EU’s joint gas buying. There is also interest in joint buying from large industrial gas consumers in the EU, Sefcovic also said.
Price, however, remains of crucial importance. Europe has been paying a lot more for its gas than the U.S., for instance, and China, according to Sefcovic. This needs to change if the bloc is to remain competitive on the world stage.
“What is increasingly important is that we have to deal with prices. We can’t power our economy at such a huge price differential compared with the US or China,” the official told Bloomberg.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.