<p>Due to the ongoing Russia-Ukraine war, there have been significant increases in the price of energy in Europe, not only for natural gas, but also for electricity and oil.</p>
<p>The problem seems to be that we are in a &quot;seller's market&quot;, in the sense that there are multiple energy importers, who all compete to buy from a limited set of energy producers, so the price keeps inflated.</p>
<p>The idea of the &quot;mandatory intermediary&quot; for energy imports would be the following:</p>
<ul>
<li>No EU company would be allowed to import energy from outside the EU.</li>
<li>The intermediary would be the only EU entity that would be allowed to import energy.</li>
<li>The intermediary would negotiate on the international energy markets on behalf of the entire European Union.</li>
<li>EU companies would buy their energy from an internal market managed by the intermediary.</li>
</ul>
<p>My hypothesis is that this would achieve the following objectives, but I am not sure about this, hence the question:</p>
<ol>
<li>The intermediary would be a powerful entity in the energy markets (probably the biggest in the world). Thus, it would have much better negotiating power. See here for an explanation how buying power can effect negotiations: <a href="https://en.wikipedia.org/wiki/Bargaining_power#Buying_power" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Bargaining_power#Buying_power</a></li>
<li>Since all EU energy imports would be through the intermediary, there would be significantly less competition for energy imports, so the external price would be driven down. The reason for this is that now any importer must bid a higher price and the rest of the importers in order to secure the supply of energy. With the proposed system, the intermediary would provide a singe bid curve (i.e. price-quantity vector), so any producer would either accept the offer, or be left outside the market (this would work better for products that are spatially limited, such as natural gas).</li>
<li>It would allow centralized control of energy imports, so that the EU would be less susceptible to blackmail from the energy producers. A single directive from the commission or the EU parliament would be sufficient to impose an &quot;energy holiday&quot; in Europe, thus limiting the outflow of capital towards the energy producers.</li>
<li>Due to the supply/demand dynamic, at times of artificial supply reduction (like now), the internal energy markets would trade at a large premium over the international prices. This would generate significant revenues that could be used for subsidizing the citizens and industries most affected by the energy price spikes. The justification for this is the following: When there is an artificial drop in supply with an aim to increase prices (like we are currently seeing), the price on the external market would be set by the buyer, so the available energy would be less than the demand. Since the consumers would compete for this limited supply, the price on the internal market would spike, but the revenue from this price increase would benefit the society, not just the producers.</li>
</ol>
<p>For markets like natural gas, where the consumption is limited geographically, having a single buyer would mean that any producer who wants to sell his energy would necessarily need to offer it at a price lower than the one set by the buyer, otherwise the energy would not be sold at all. This would have a big impact on society, since energy outages would be much more common, but at least it would stop the huge capital outflows we are currently experiencing.</p>
<p>The idea would be for the intermediary to operate like a &quot;reverse OPEC&quot; but for buyers, instead of sellers.</p>
<p>My question is does this proposal make economic sense? Has any scheme like this ever been tried by any other nation/group of nations, to try to alleviate exorbitant prices? Do you believe that this system could work in managing this energy crisis? Do you see any negative consequences from such a scheme?</p>
<h3>Edit</h3>
<p>It looks like the EU is going into the direction proposed in this question, see: <a href="https://abcnews.go.com/Business/wireStory/eu-moves-joint-natural-gas-purchase-curb-shortages-83601108" rel="nofollow noreferrer">https://abcnews.go.com/Business/wireStory/eu-moves-joint-natural-gas-purchase-curb-shortages-83601108</a></p>

CC BY-SA 4.0
2022-03-23T07:27:32.390Z
Re: recent edit; Yeah, my concern was not that this idea has no benefits (more for some EU countries than for others), it is just that those benefits are not about managing price spikes as you seem to claim in your question.
Giskard
CC BY-SA 4.0
2022-03-08T17:19:57.330Z
Hi! Why is 4. true? The price of oil is high globally as demand is currently high. Your intermediary would not reduce the quantity demanded by the EU, would it?
Giskard
CC BY-SA 4.0
2022-03-08T17:23:23.657Z
@Giskard: Yes, at times when the price is very high, the intermediary would buy a smaller quantity than the internal demand. This could lead to energy shortages but it would be in a controlled manner, while at the same time limiting the capital outflows.
user000001
CC BY-SA 4.0
2022-03-08T17:45:21.380Z
But then you are restricting supply, so the internal price would be even higher? Thus you cause larger price spikes?
Giskard
CC BY-SA 4.0
2022-03-08T17:53:39.933Z
@Giskard: That is true, the spot price could increase even more than the current system. But the revenue would benefit the local people and companies, instead of potentially hostile entities. Take for example the natural gas market: Gazprom now controls the majority of production. Almost all of this production is consumed by EU companies. (1/2)
user000001
CC BY-SA 4.0
2022-03-08T17:53:49.787Z
@Giskard: Instead of having all the EU companies bidding up the price, and all the profit going to Putin, the EU as a whole would provide a single price curve, while accepting the possible shortages. The consumers then compete internally, the price increases, but it doesn't matter because the profits from this competition remain internal. Since there would be essentially a single buyer, the external price could remain much lower than it is now. (2/2)
user000001
CC BY-SA 4.0
2022-03-08T17:59:35.940Z
Yeah I understand the concept, it's just that this is no longer managing price spikes (as advertised in the title of your question), this is just a plain buyer's cartel to redistribute surplus.
Giskard
CC BY-SA 4.0
2022-03-08T18:37:13.327Z
@Giskard: Yes a cartel, but a benevolent cartel. In the long term though I believe that it would reduce price spikes: if the single buyer remains firm in the objectives, the only way for the producers to increase revenue is to increase the supply, so this would limit price spikes from artificial supply reduction, at least in the external market.
user000001
CC BY-SA 4.0
2022-03-08T19:06:19.490Z
Can you please support the claims that such proposal would achieve the objectives 1-4 with references?
1muflon1
CC BY-SA 4.0
2022-03-08T19:08:38.247Z
@1muflon1: Not really, I can't, this question is mostly based on "original research", if that is allowed on this site. I was hoping that the answers would show if the premises of the question are true or not.
user000001
CC BY-SA 4.0
2022-03-08T19:21:41.223Z
@user000001 then can you please support those conclusions with mathematical derivations or empirical models that you employed in your “original research”? You can ask questions based on an original research but your question above makes a claim that 1-4 will be the result of the proposal. If you would ask if any of the 1-4 could be outcome of the proposal you outline that would be at least a question but if you state something as matter of fact or claim that there is this or that effect as a premise of a question we will expect you to support the premises by references or primary research
1muflon1
CC BY-SA 4.0
2022-03-09T05:54:40.953Z
@1muflon1: Ok I made the edit, hope it is better now.
user000001
CC BY-SA 4.0
2022-03-10T00:02:47.553Z
In point 4, you state there would be a significant  premium over international prices. Yet, you think that the excess revenue will be sufficient to compensate this even higher price. That sounds like Voodoo economics. Also, oil price rises you read online are usually the price of Brent or WTi futures (not Russian oil). Russian gas still flows normally (in fact a bit more than [before](https://www.reuters.com/business/energy/is-war-ukraine-impacting-russian-gas-supplies-europe-2022-03-07/)) and prices of gas are not the Russian prices but local spot priced (in Europe).
Alex
<macroeconomics><balance-of-trade><energy-economics><regulation><european-union>
Could a mandatory intermediary for EU energy imports help in managing price spikes?
user000001
# Could a mandatory intermediary for EU energy imports help in managing price spikes?

(Asked by: username_0 on 2022-03-08)

Due to the ongoing Russia-Ukraine war, there have been significant increases in the price of energy in Europe, not only for natural gas, but also for electricity and oil.

The problem seems to be that we are in a "seller's market", in the sense that there are multiple energy importers, who all compete to buy from a limited set of energy producers, so the price keeps inflated.

The idea of the "mandatory intermediary" for energy imports would be the following:

* No EU company would be allowed to import energy from outside the EU.
* The intermediary would be the only EU entity that would be allowed to import energy.
* The intermediary would negotiate on the international energy markets on behalf of the entire European Union.
* EU companies would buy their energy from an internal market managed by the intermediary.

My hypothesis is that this would achieve the following objectives, but I am not sure about this, hence the question:

1. The intermediary would be a powerful entity in the energy markets (probably the biggest in the world). Thus, it would have much better negotiating power. See here for an explanation how buying power can effect negotiations: <https://en.wikipedia.org/wiki/Bargaining_power#Buying_power>
2. Since all EU energy imports would be through the intermediary, there would be significantly less competition for energy imports, so the external price would be driven down. The reason for this is that now any importer must bid a higher price and the rest of the importers in order to secure the supply of energy. With the proposed system, the intermediary would provide a singe bid curve (i.e. price-quantity vector), so any producer would either accept the offer, or be left outside the market (this would work better for products that are spatially limited, such as natural gas).
3. It would allow centralized control of energy imports, so that the EU would be less susceptible to blackmail from the energy producers. A single directive from the commission or the EU parliament would be sufficient to impose an "energy holiday" in Europe, thus limiting the outflow of capital towards the energy producers.
4. Due to the supply/demand dynamic, at times of artificial supply reduction (like now), the internal energy markets would trade at a large premium over the international prices. This would generate significant revenues that could be used for subsidizing the citizens and industries most affected by the energy price spikes. The justification for this is the following: When there is an artificial drop in supply with an aim to increase prices (like we are currently seeing), the price on the external market would be set by the buyer, so the available energy would be less than the demand. Since the consumers would compete for this limited supply, the price on the internal market would spike, but the revenue from this price increase would benefit the society, not just the producers.

For markets like natural gas, where the consumption is limited geographically, having a single buyer would mean that any producer who wants to sell his energy would necessarily need to offer it at a price lower than the one set by the buyer, otherwise the energy would not be sold at all. This would have a big impact on society, since energy outages would be much more common, but at least it would stop the huge capital outflows we are currently experiencing.

The idea would be for the intermediary to operate like a "reverse OPEC" but for buyers, instead of sellers.

My question is does this proposal make economic sense? Has any scheme like this ever been tried by any other nation/group of nations, to try to alleviate exorbitant prices? Do you believe that this system could work in managing this energy crisis? Do you see any negative consequences from such a scheme?

### Edit

It looks like the EU is going into the direction proposed in this question, see: <https://abcnews.go.com/Business/wireStory/eu-moves-joint-natural-gas-purchase-curb-shortages-83601108>

**Tags:** macroeconomics, balance-of-trade, energy-economics, regulation, european-union
> **Comments:**
> **username_1**: Hi! Why is 4. true? The price of oil is high globally as demand is currently high. Your intermediary would not reduce the quantity demanded by the EU, would it?  
> **username_0**: @Giskard: Yes, at times when the price is very high, the intermediary would buy a smaller quantity than the internal demand. This could lead to energy shortages but it would be in a controlled manner, while at the same time limiting the capital outflows.  
> **username_1**: But then you are restricting supply, so the internal price would be even higher? Thus you cause larger price spikes?  
> **username_0**: @Giskard: That is true, the spot price could increase even more than the current system. But the revenue would benefit the local people and companies, instead of potentially hostile entities. Take for example the natural gas market: Gazprom now controls the majority of production. Almost all of this production is consumed by EU companies. (1/2)  
> **username_0**: @Giskard: Instead of having all the EU companies bidding up the price, and all the profit going to Putin, the EU as a whole would provide a single price curve, while accepting the possible shortages. The consumers then compete internally, the price increases, but it doesn't matter because the profits from this competition remain internal. Since there would be essentially a single buyer, the external price could remain much lower than it is now. (2/2)  
> **username_1**: Yeah I understand the concept, it's just that this is no longer managing price spikes (as advertised in the title of your question), this is just a plain buyer's cartel to redistribute surplus.  
> **username_0**: @Giskard: Yes a cartel, but a benevolent cartel. In the long term though I believe that it would reduce price spikes: if the single buyer remains firm in the objectives, the only way for the producers to increase revenue is to increase the supply, so this would limit price spikes from artificial supply reduction, at least in the external market.  
> **username_2**: Can you please support the claims that such proposal would achieve the objectives 1-4 with references?  
> **username_0**: @1muflon1: Not really, I can't, this question is mostly based on "original research", if that is allowed on this site. I was hoping that the answers would show if the premises of the question are true or not.  
> **username_2**: @user000001 then can you please support those conclusions with mathematical derivations or empirical models that you employed in your “original research”? You can ask questions based on an original research but your question above makes a claim that 1-4 will be the result of the proposal. If you would ask if any of the 1-4 could be outcome of the proposal you outline that would be at least a question but if you state something as matter of fact or claim that there is this or that effect as a premise of a question we will expect you to support the premises by references or primary research  
> **username_0**: @1muflon1: Ok I made the edit, hope it is better now.  
> **username_3**: In point 4, you state there would be a significant  premium over international prices. Yet, you think that the excess revenue will be sufficient to compensate this even higher price. That sounds like Voodoo economics. Also, oil price rises you read online are usually the price of Brent or WTi futures (not Russian oil). Russian gas still flows normally (in fact a bit more than [before](https://www.reuters.com/business/energy/is-war-ukraine-impacting-russian-gas-supplies-europe-2022-03-07/)) and prices of gas are not the Russian prices but local spot priced (in Europe).  
> **username_1**: Re: recent edit; Yeah, my concern was not that this idea has no benefits (more for some EU countries than for others), it is just that those benefits are not about managing price spikes as you seem to claim in your question.  

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## 0 answers

