So far, retailers have not shown much interest: "We don't need it, the market will take care of it" is their tenor. Firstly, an overview as of the beginning of April:
- The aim of AggregateEU is to contribute to the EU's security of supply in terms of volume and favourable prices, especially for storage filling in the next two winters. The aim is to give interested parties direct access to global LNG markets.
- Member states are legally obliged to declare at least 15 % of the storage obligation for demand aggregation, which corresponds to around 135 TWh/a. However, they do not have to purchase and if they do, they could use the gas for other purposes than filling storage facilities. Potential buyers can therefore withdraw their demand if they do not like the offer. If they accept the offer, the contract details are negotiated bilaterally - AggregateEU merely offers support if required.
- Monthly bands are tendered on a rolling basis - with two months' lead time for the following twelve individual months. The minimum volume per monthly band is 5 GWh for national market areas and 300 GWh for LNG traded at two virtual LNG delivery points (N/W and S/E Europe).
- Buyers can be traders or large consumers for themselves if they have sufficient demand. There are also two options: The central buyer model ("centralbuyer") for buyers who do not wish to become active on the platform themselves. The centralbuyer aggregates the volumes of its customers, concludes the contracts with the bidder itself and organises the transport of the gas to the customer - effectively a supplier model. In contrast, the "agent-on-behalf" (i.e. a gas logistics service provider) is commissioned by the buyer or the buyer group (pool) with the necessary services to transport the gas purchased from the bidder to the customer's balancing group, primarily for transport from the LNG terminal to the respective market area. However, the bidder's contractual partners remain the customers, which significantly restricts the group of potential small customers, as they are often still in current full supply contracts and presumably do not want to build up the necessary expertise. At the time of writing, no companies were listed as "centralbuyer" or "agent-on-half" service providers.
- The joint procurement of natural gas will serve as a learning process for the implementation of a possible future joint procurement of green hydrogen.
Requirements for the industry
Are there better prospects for the industry than for traders? The most important prerequisite for participation is a suitable procurement model that enables the company to include additional "third-party volumes" in its own (sub- or customer) balancing group. This model is common for large customers from approx. 100 GWh/a. Those who are currently still in a full supply (e.g. OTC-indexed tranche model) would have to reach an agreement with their supplier to allow customer to subsequently procure third-party volumes via AggregateEU. The chances of this happening are slim, as the administrative effort involved is high and suppliers are unlikely to have much economic interest in this model.
The consumption volume is also important: with a gas consumption of 100 GWh/a, this is approx. 8.3 GWh/month, which is only just above the minimum demand of 5 GWh/month required for supply in a market area. Only with a uniform structure does this monthly band still fit into the portfolio without covering it. As most companies have already secured volumes for the following year, it is more likely to be companies with gas consumption of 300 GWh/a or more that could participate in AggregateEU and have to register themselves. If you are interested in supplying to one of the LNG delivery points in north-west or south-east Europe, the mandatory minimum volume is 300 GWh/month. This threshold can only be met by companies that consume more than 5 TWh/a of gas. There are only a few of these. In addition, an "agent-on-behalf" must organise the logistics services to the market area or balancing group. Therefore participation in the LNG tender only works for most large customers if they pool their demand with other customers.
What happens after the registration?
Going back to industrial companies with a consumption of 5 GWh or more per month: Once registration has taken place, the question arises as to whether an attractive offer with sufficient volume will be placed on the PRISMA platform in the market region (ideally THE), which the customer then accepts (possibly only on a pro rata basis if overall demand is too high). The customer must then reach a bilateral agreement with the bidder on the contractual details (payment, collateral). This raises the question of whether the offers in the market region are just as attractive as at the LNG delivery points, where globally active producers are more likely to offer gas.
Buyers who do not wish to become active on the platform themselves can opt for the central buyer model. The "centralbuyer" aggregates the volumes of its customers, concludes the contracts with the bidder itself and organises the transport of the gas to the customer - a supplier model, so to speak. Although this would be the most convenient model, it would have to be well negotiated so that it is comparable to the "agent-on-behalf" model in terms of price. It will be interesting to see who registers for this model on the platform and what offers are made. So far there has been no entry. Many questions are still unanswered, so here are just the most important ones: is there interest in the market? How high are logistics costs from the LNG hub to the market area? Will hurdles (e.g. through collateral) be removed for smaller companies?
Participate or not?
It is therefore still necessary to make adjustments in order to make the platform a success. So what are the arguments in favour of participation? Politically, failure is hardly conceivable. Those responsible will endeavour to achieve success. The demand obligation for the gas storage facilities will bring a considerable volume onto the platform, which favourable LNG producers could see as an opportunity to bring additional volumes onto the market. At currently around €7/MWh at the US Henry Hub, there is a lot of headroom towards TTF or THE. This creates opportunities for buyers. Added to this is the EU's announcement that green hydrogen and renewable gases will also be marketed via the platform in future. The learning process alone is worth the effort. And you can't lose - only if you don't participate.
ecotec is happy to help companies that cannot or do not want to participate in the platform on their own. More information will be available shortly at www.gas-pool.eu.