The Commission’s new investigation and EU antitrust enforcement in the gas sector
On 31 March 2022, the European Commission (Commission) announced that it (together with the German Federal Cartel Office (Bundeskartellamt)) had carried out unannounced inspections of several gas companies active in the supply, transmission and storage of natural gas for alleged abuse of a dominant position. The Commission did not disclose specific company names and details on the concrete allegations and markets affected, but press reports and earlier Commission statements1 indicate that the inspections relate to concerns about artificially shortening gas supply, causing higher gas prices in Europe that the Commission has been investigating since autumn 2021.
Abusive behaviour can generally comprise a wide range of exclusionary and exploitative business practices by dominant companies, including directly or indirectly imposing excessive prices or limiting production to the prejudice of consumers (article 102 (a) and (b) TFEU).
At this stage, the Commission’s concrete allegations and theory of harm remain unclear. Abuse of dominance cases in the energy sector are particularly complex in light of the interplay between competition and regulatory issues. That the Commission conducts unannounced inspections is not uncommon in an EU antitrust investigation, and such inspections do not in themselves prejudge the outcome.
If, however, the Commission was to ultimately find sufficient evidence for a violation of EU competition law rules, it would have the power to impose high fines (10 per cent of global group turnover) and behavioural and structural remedies to eliminate the competition concerns identified. In addition, it can impose interim measures where the behaviour at stake is likely to create serious and irreversible harm to competition. Only recently, for the first time, the Commission imposed interim measures in a competition law case, and it is expected that it will use this power more actively in the future.2
EU antitrust enforcement has proven to be a powerful and effective tool for the Commission to integrate the EU internal gas market. In recent years, the Commission successfully completed three abuse of dominance investigations against Gazprom, BEH and TSO Transgaz to dissolve bottlenecks in central and eastern European gas markets.3 The new investigation confirms this general enforcement trend and has now gained significant extra attention in light of Russia’s invasion of Ukraine.
While the ongoing investigation appears to focus on Russian gas supply in Europe, the Commission and national competition authorities are closely monitoring ongoing developments in the European gas markets to ensure that gas prices and cross-border flow of gas in the EU are not negatively affected by anti-competitive business practices of companies active across the entire gas supply chain, from gas/LNG import and wholesale, trading, storage and transmission to retail and distribution. Businesses at all levels of the gas supply chain need to make sure that their practices do not contribute to or benefit from higher gas prices in a way that violates EU and/or national competition laws.
Recent key EU regulatory and legislative measures
The Commission has recently also taken significant regulatory and legislative steps in response to high gas prices and additional security of supply concerns caused by Russia’s invasion of Ukraine. These steps include a series of emergency measures to respond to rising energy prices in Europe and secure sufficient gas stocks for next winter (and beyond), and the plan to eliminate the EU’s dependence on fossil fuels from Russia before 2030.
Proposal to secure EU gas storage for next winter and beyond
On 23 March 2022, the Commission proposed a new Regulation on Gas Storage to introduce a minimum 80 per cent gas storage level obligation for next winter to ensure security of supply, rising to 90 per cent for the following years. Key elements of the proposal include:
- An obligation for Member States to ensure that their underground gas storage infrastructure is filled up to at least 80 per cent of its capacity by 1 November 2022, rising to 90 per cent for the following years (with intermediary targets from February to October).
- A requirement for Member States without their own storage facilities to arrange gas storage in other EU countries by 1 November 2022, corresponding to at least 15 per cent of the Member State’s annual gas consumption without storage facilities. Alternatively, Member States without storage facilities may jointly develop a burden-sharing mechanism with one or more Member States with storage facilities. The proposal also makes clear that no restrictions on cross-border access and use of storage or LNG can be imposed.
- The introduction of new mandatory certification for all gas storage facilities to avoid potential risks resulting from outside influence over critical storage infrastructure. Once implemented, non-certified operators will have to give up ownership or control over EU gas storage facilities. Any third-country investor with existing ownership interests in gas storage facilities in the EU (i.e., not only Russia) will be subject to tighter regulatory scrutiny in the future. In addition, for a gas storage facility to close down its operations, it would need authorisation from the national energy regulator.
- To incentivise operators to fill their storage facilities, the new Regulation also proposes a 100 per cent discount from the capacity-based transmission tariffs at entry and exit points to storage facilities. Member States are free to design other measures to further incentivise gas storage regardless of whether they have storage facilities in their territories.
The proposed Regulation still requires formal approval from the European Parliament and Council under the ordinary legislative process, and the new rules are expected to enter into force in the second half of 2022. The Commission proposes to implement the new mandatory certification regime as follows: To prioritise the certification of key storage facilities in the EU (out of the approximately 160 in total), all storage sites that are large enough to play a role in security of supply (above 3.5 TWh) and that had consistently low levels of storage at the end of the winter, will need to be certified within 100 days of the entry into force of the new Regulation. The remaining facilities would have to be certified within 18 months from the entry into force of the proposed Regulation. If implemented, this will put an additional administrative burden on gas storage operators to diligently cope with the new regulatory requirements. The new Regulation will further lead to an increase in available capacities, which will also affect gas wholesale and trading activities and ultimately the future pricing structure. Careful horizon scanning is therefore required.
Reduce and eliminate EU dependence on Russian gas
On 8 March 2022, the Commission outlined its REPowerEU plan to phase out dependence on fossil fuels from Russia well before 2030 (REPowerEU: Joint European Action for more affordable, secure and sustainable energy). This will be achieved by:
- Diversifying gas suppliers, via LNG and pipeline imports from non-Russian suppliers, and larger volumes of biomethane and renewable hydrogen production and imports.
- Accelerating the reduction of fossil fuel use in homes, buildings, industry and power systems by boosting energy efficiency, increasing renewables and electrification and addressing infrastructure bottlenecks.
The Commission aims to present its detailed REPowerEU plan in May 2022. With these measures, the Commission aims to gradually remove at least 155 billion cubic metres (bcm) of fossil gas use (equivalent to the volume imported from Russia in 2021), of which nearly two-thirds shall be achieved within a year. In the Versailles declaration of 11 March 2022, EU leaders agreed to phase out Europe’s dependence on Russian gas (as well as oil and coal) imports as soon as possible.
EU partnerships with third countries will play a key role in the Commission’s diversification plan in the years ahead. On 25 March 2022, for instance, the Commission and the U.S. Government agreed a strategic energy cooperation for security of energy supply and reduction of dependence on fossil fuels (see Joint Statement between the European Commission and the United States on European Energy Security). Among other measures, the new cooperation provides that the United States will supply additional LNG volumes of at least 15bcm to the EU in 2022 and the EU will ensure stable demand for additional US LNG until at least 2030 of approx. 50bcm per year.
Additional partnerships are likely to follow soon. For this purpose, the Commission is proposing to set up a task force on common gas purchases at EU level. By pooling demand, the task force will facilitate and strengthen the EU’s negotiation powers vis-à-vis suppliers and help Member States to secure well-priced imports ahead of next winter and beyond (see, for more details, Communication on security of supply and affordable energy prices).
These regulatory measures will further accelerate the energy transition and provide many stakeholders with opportunities and incentives to transform and modernise their businesses.
Emergency measures to mitigate high energy prices
The Commission has taken several steps to help mitigate the impact of high energy prices on households and businesses since summer 2021. In its “Energy Prices Toolbox” in October 2021, the Commission outlined the type of measures that Member States can implement under EU rules to help vulnerable consumers and businesses facing higher prices, including setting energy subsidies and vouchers, tax reductions and measures to avoid energy disconnection.
In light of Russia’s invasion of Ukraine, the Commission took additional steps during the course of March 2022. In REPowerEU: Joint European Action for more affordable, secure and sustainable energy of 8 March 2022, the Commission provided additional guidance to Member States, including on the possible regulation of prices for end consumers in exceptional circumstances, and on how Member States can redistribute revenue from high energy sector profits and emissions trading to consumers. The Commission’s Communication on security of supply and affordable energy prices of 23 March 2022 further presents several options for exceptional emergency measures put forward by Member States to tackle the high electricity prices (caused by high gas prices), including financial compensation (for retail/wholesale) and regulatory measures. In addition, the Commission adopted its new State Aid Temporary Framework enabling Member State support in the form of direct grants, liquidity support and aid for increased gas and electricity costs, to undertakings affected by the economic impact of Russia’s invasion of Ukraine. This new framework (in force until 31 December 2022 and subject to extensions) brings significant legal certainty to businesses to ensure that the state support they receive is in line with EU state aid rules and not subject to recovery claims in the future.
Key takeaways
Need for antitrust compliance:
- The entire gas industry is currently in focus.
- Don’t believe that the current spotlight is only on Russian suppliers.
- Businesses at all levels of the gas supply chain need to make sure that their practices do not contribute to or benefit from higher gas prices in a way that violates EU and/or national competition laws.
- Antitrust compliance is therefore more important than ever.
- Prohibited behaviour does not only concern collusion between competitors. It can also include information exchange and signalling.
- In turn, antitrust can also be used as a tool to attack the activities of competitors and other market participants.
Upcoming regulatory changes:
- The Commission is taking several regulatory steps to:
- Secure EU gas storage for next winter
- Reduce and eliminate the EU dependence on Russian gas
- Mitigate high-energy prices
- If implemented, the proposed Regulation on Gas Storage will put an additional administrative burden on gas storage operators to diligently cope with the new regulatory requirements. The new Regulation will further lead to an increased level of available capacities, which will also affect gas wholesale and trading activities and ultimately the future pricing structure. Careful horizon scanning is therefore required.
- Overall, these regulatory measures will further accelerate the energy transition and provide many stakeholders with opportunities and incentives to transform and modernise their businesses. With its emergency measures, the Commission provides a powerful toolbox and helpful guidance for Member States to mitigate high energy prices. Proactive and informed companies can benefit from these measures.
- In its Communication “REPowerEU: Joint European Action for more affordable, secure and sustainable energy”, dated 8 March 2022, the Commission disclosed that it is currently investigating as a matter of priority all allegations of potential anti-competitive commercial conduct by a leading gas supplier and gathering additional information from market players. While it did not disclose the concrete allegation, it reported that a leading gas supplier was involved in “unusual business behaviour” and very low filling levels of storage infrastructure in the EU (approx. 16 per cent) operated by the leading gas supplier concerned compared to storage (44 per cent) operated other companies. In December 2021, Ukrainian State-owned gas company Naftogaz had filed a complaint to the Commission alleging that the leading gas supplier concerned abused its dominant positions in the gas markets by “sharply reducing” gas deliveries to the European market, despite growing demand, thereby creating an artificial gas shortage contributing to record high prices in the EU.
- European Commission Press Release, “Commission imposes interim measures on Broadcom in TV and modem chipset markets”, 16 October 2019.
- Another investigation against Qatar Petroleum, which started in 2018 and related to alleged territorial restrictions concerning LNG imports into Europe, was formally closed on 31 March 2022 for lack of evidence (see Reuters, “EU regulators close antitrust investigation into Qatar Energy”, 31 March 2022).
In-depth 2022-108
