Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 12, 2023
There are many consequences of the unfinished Ukraine War, most of them are absolutely bad. Worse, some are irreversible by turning the clock backwards.
Before the Ukraine war, EU was a model of free markets with very high-quality rules and regulations, free of government interventions. The Ukraine war was initiated with EU’s desire of becoming independent of Russian energy. But the hasty divorce with Russian energy by harsh sanctions did not work as expected: rather it created “one of the worst energy crises in living memory.” As a result, the EU and Britain suffered almost zero economic growth at the end of 2022.
In order to stabilize the energy market, the EU has to initiate massive government intervention programs with massive subsides to major energy companies, allowances supporting the public, and severe energy conservation policies. The pattern is antimarket and anti-free enterprise. A core issue is that, once the free-market system is destroyed, it will be extremely difficult to build a new functional market system. It also will have long term impacts on the global energy market.
Th emerging EU Gas Buyers’ Cartel is another movement backing away from free markets. The logic of buying large volume means lower prices is easy to understand. But forming one cartel will encourage the formation of another cartel. The end result could be horrifying that the global natural gas buyers’ market could be controlled by a few buyers’ cartels in different geopolitical domains. On the other hand, natural gas producers could form producers’ cartels. If so, there would be no “spot market” and every deal could be locked in with long term contracts. In the long term, the consumers will have to pay the prices fixed by the cartels.
Get Ready For The EU Gas Buyers’ Cartel
Sun, March 12, 2023 at 4:00 PM PDT
Rocked by one of the worst energy crises in living memory, the European Union will make its first move as a gas buyers’ cartel next month as it launches the first tender for suppliers, Bloomberg has reported. According to Commission Vice President Maros Sefcovic, some 50 gas suppliers and large industrial gas consumers in the EU have already expressed interest in being part of the bloc’s joint gas buying effort. A key objective of the whole endeavor is to keep gas prices low by buying in larger volumes.
Although natural gas prices are a lot lower than they were a year ago, the EU still needs to buy vast quantities of gas to refill its storage, with such a move likely to drive prices higher. Sefcovic says that the EU plus four neighboring countries will require 24 billion cubic meters of natural gas over the next three years to meet their needs. Further, Europe has been paying a considerable premium for its gas compared to the U.S. and China, and this needs to change if the region is to remain competitive on the global 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,” Sefcovic has told Bloomberg.
Back in April, the EU launched the Platform for the common purchase of gas, LNG and hydrogen. The Platform is intended to help ensure security of supply, in particular for the refilling of gas storage facilities in time for next winter. The Platform did succeed in its mission, with the continent managing to fill its storage well ahead of winter. However, the organization did not have much success as far as lowering prices go, with the cost of replenishing natural gas stocks in Europe estimated at over 50 billion euros ($51 billion), 10 times more than the historical average for filling up tanks ahead of winter.