Journal of World Energy Law and Business, 2016, 9, 437–445

doi: 10.1093/jwelb/jww027
Article

Joint Purchases of US LNG by

European Consortiums:
Potential Antitrust Issues
Kim Talus*
ABSTRACT
This article examines the possibility for joint purchases LNG from United States by consortiums of
European Union based companies. The main focus of the study is to examine and apply the rules of
EU competition law to joint purchasing of US-based LNG. The article will discuss various sensitive
areas for this type of cooperation and provide guidance on how to address the most difficult issues
from a competition law perspective.

1. INTRODUCTION
LNG to North and East Europe
As is well known, the shale gas revolution has transformed the US natural gas markets and turned the USA
from being a net importer into an exporter of liquefied natural gas (LNG). Cheniere’s Sabine Pass project,
which changed from being an import project (with regasification contracts in place) into an export project
(with its first shipments departing on 24 February 2016 to Brazil), serves to illustrate the pace of this change.1
Shale gas has not had quite the same success in the European Union (EU) as in the USA. Instead, its pro-
gress has now largely stalled in many EU Member States with moratoria and bans being imposed on shale
gas development. Looking at the big picture in the EU, one could generalize by suggesting that those
Member States where security of gas supply and dependence on Russian supplies are matters of concern
have continued to develop unconventional gas sources, whereas those where such dependence and concern
over security of supply are not politically so significant have opted for limits or bans.2 However, given that
progress in the first group of countries (Eastern and Central Europe3) has been slow, these countries are also
looking for alternatives. One such alternative is to develop the pipeline network to allow natural gas to be

* Professor of European Energy Law at UEF Law School, University of Eastern Finland. E-mail: kim.talus@uef.fi. Funding for this article has
come from Academy of Finland projects no. 276974, (‘Impact of shale gas in EU energy law and policy; regulatory and institutional perspec-
tive’) and no. 293437 (‘Transition to a resource efficient and climate neutral electricity system’).
1 See www.cheniere.com.
2 This is a very rough categorization. For example, UK allows shale gas E&P. On this topic, see MK Pyh€aranta, ‘Reforms in UK Shale Gas
Regulation: Better Prospects for Investors?’ (2016) 2 European Energy and Environmental Law Review 56.
3 There is some reason for the security concern in the sense that the 2014 natural gas stress test measuring the impact of a supply cut affect-
ing the eastern gas flows conducted by the European Commission showed that eastern EU Member States and Energy Community
Contracting Parties located in south east Europe, plus the Baltic region and Finland, are particularly vulnerable to a supply cut affecting the
flow of Russian gas. See European Commission, on the short-term resilience of the European gas system. Preparedness for a possible dis-
ruption of supplies from the East during the fall and winter of 2014/2015 (COM/2014/654). The same conclusion was recently reached in
European Commission Communication on an EU strategy for LNG and gas storage (COM/2016/49), 16 February 2016.

C The Authors 2016. Published by Oxford University Press on behalf of the AIPN. All rights reserved.
V

 437
438  Joint purchases of US LNG

transported from the western part of the EU, and from new or existing LNG facilities in the Mediterranean
or the Baltic. Given that utilization rates in respect of the existing LNG terminals have been low over the last
few years (often less than 20 per cent of total regasification capacity), there is ample scope for increased im-
ports of LNG, depending of course upon the price. The missing piece is often the pipeline network connect-
ing the import point (the coastal LNG facility) to the consumption area (a land-locked country in Eastern or
Central Europe). Some progress has been made on this issue and EU funding of infrastructure development
through Regulation (EU) No 347/20134 (the PCI Regulation5) and Regulation (EU) No 1316/2013 (the
Connecting Europe Facility Regulation)6 has been increased.
Despite the low utilization rates in respect of the existing LNG regasification terminals within the EU,
new developments have taken place, and in the north two LNG facilities have recently become operational:
the Swinoujscie terminal in Poland (which has 5 bcm annual regasification capacity, with the potential to be
being increased to 7.5 bcm, if necessary)7 and the Klaipeda FSRU terminal in Lithuania (with annual regasifi-
cation capacity of around 4 bcm).8 The rationale behind these terminals is to provide an alternative source of
gas for areas that have been overly dependent upon one producer, Russia’s Gazprom, through diversification
of supply. The supply of LNG for these terminals is currently sourced from countries like Norway (Statoil)
and Qatar (Qatargas).9 One of the discussions taking place both within the industry10 and at governmental
level11 is the possibility to source LNG for these terminals also from the USA.
At the same time, another development of relevance to this article is currently taking place: small-scale
bunkering stations have started to appear in the northern EU Member States (in Finland and Sweden, for ex-
ample). Due to restrictions on sulphur content in marine fuel,12 natural gas has become an interesting option
for ships. The increase in vessels using LNG as fuel also translates into the need to invest in ship fuelling and
bunkering stations along the coast. This is the case in northern Europe, where bunkering stations are being
built along coastlines.
Both of the above examples have the effect of increasing the demand for LNG. While LNG from the USA
could potentially be an interesting alternative for many EU importers, the supplied markets are often too
small and fragmented. This is the case for individual countries where gas demand does not allow for large
shipments from the USA, and is particularly true for the smaller bunkering stations along the coasts of
Nordic countries.
One alternative for these smaller projects is to engage in joint purchasing of LNG from the USA. Under
this type of model, buyers from different EU Member States and representing different projects would form
an LNG purchase consortium and utilize the aggregated demand to make US LNG purchasing possible.
Once such LNG shipments arrived in Europe, they could be divided up and individual owners could take
their agreed shares. For example, supplies via Poland could be utilized by Ukraine and other eastern

4 Regulation (EU) 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy in-
frastructure, repealing Decision 1364/2006/EC and amending Regulations (EC) 713/2009, (EC) 714/2009 and (EC) 715/2009 [2013]
OJ L115/39.
5 PCI stands for ‘project of common interest’.
6 Regulation (EU) 1316/2013 of the European Parliament and of the Council of 11 December 2013 establishing the Connecting Europe
Facility, amending Regulation (EU) 913/2010 and repealing Regulations (EC) 680/2007 and (EC) 67/2010 [2013] OJ L348/129.
7 See <http://en.polskielng.pl/> accessed 1 October 2016.
8 See <http://www.portofklaipeda.lt/klaipeda-lng-terminal> accessed 1 October 2016.
9 See <http://en.pgnig.pl/news/-/news-list/id/pgnig-takes-first-delivery-of-lng-under-spot-contract/newsGroupId/18252?changeYear¼
2016&currentPage¼1> accessed 1 October 2016.
10 This issue was discussed, eg at the industry event INNOPOWER 2016, held in Poznan, Poland from 12 to 13 May 2016.
11 LNG trade between the USA and the EU has been part of the negotiations towards a transatlantic trade and investment partnership
(TTIP).
12 Directive 2012/33/EU of the European Parliament and of the Council of 21 November 2012 amending Council Directive 1999/32/EC
as regards the sulphur content of marine fuels [2012] OJ L327/1.
 Joint purchases of US LNG  439

European markets, as gas could be transported to these areas or gas swaps could be arranged. For smaller
LNG bunkering stations in the north, shipments could be divided among smaller units at the Klaipeda LNG
facility and re-transportation could take place in smaller vessels. Both options could enable the purchase of
larger volumes of LNG and make US LNG a viable option.13

Joint gas purchasing by EU companies

The idea of a joint gas purchasing vehicle is not new. In 2008, the European Commission proposed the cre-
ation of a new block purchasing mechanism for Caspian gas, via a project entitled the ‘Caspian Development
Corporation’.14 The intention then was both to unlock new supplies from the Caspian region and to support
the construction of the necessary transportation infrastructure. Another similar proposal was made for the
creation of a gas purchasing group or even a gas purchasing agency that would act on behalf of the industry
and States vis-a-vis external suppliers.15 These plans never materialized, partly because the tension with com-
petitive markets and competition law was obvious.
In 2014, the Polish Prime Minister Donald Tusk16 again suggested a system of common purchasing of gas
from outside of the EU. Although this proposal has not led to much direct action, the possibility of common
purchasing schemes is now once again being discussed in the context of a Commission proposal for a new
regulation concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No
994/2010:17

As regards joint purchasing mechanisms, the Regulation makes it clear that Member States and natural
gas companies are free to explore the potential benefits of purchasing natural gas collectively to address
supply shortage situations. Such mechanisms should be in line with WTO and EU competition rules,
in particular with Commission guidelines on horizontal cooperation agreements.

While such references to EU competition law are made in various documents,18 none explains what is meant
by compliance with EU competition law in this context. The following sections of this article examine and
apply the relevant rules of EU competition law to joint purchasing of US-based LNG. Section 2 provides an
overview of the relevant rules of EU competition law, while Section 3 applies these rules to joint purchases of
US LNG by EU consortia.

2. JOINT PURCHASING: RELEVANT RULES OF EU COMPETITION LAW

Horizontal cooperation, meaning cooperation between companies acting on the same level of the supply
chain, can be caught under Article 101(1) of the Treaty on the Functioning of the European Union

13 This, of course, also assumes that the size of these terminals allow for unloading of large enough ships. Both examples used in this article,
Polish Swinoujscie and the Lithuanian Klaipeda FSRU terminals allow for offloading of a small conventional LNG vessel of max 315
meters length, 50 meters width and 12.5 meters depth. Also the Danish Straights allows for passage of the average size (small conven-
tional) LNG vessels used for US LNG exports.
14 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the
Committee of the Regions—‘Second Strategic Energy Review: An EU Energy Security and Solidarity Action Plan’ COM(2008)0781 final.
15 S Andoura, L Hancher and M van der Woude, Towards a European Energy Community: A Policy Proposal (Notre Europe Project 2010)
115–16.
16 See, eg this article by D Tusk: <https://www.ft.com/content/91508464-c661-11e3-ba0e-00144feabdc0> accessed 1 October 2016.
17 Commission, ‘Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard the security of
gas supply and repealing Regulation (EU) 994/2010’ COM(2016) 52 final Brussels, 16 February2016.
18 In addition to joint purchasing proposals, references to compliance with EU competition law is commonly made in the context of long-
term natural gas contracts. On this issue, see K Talus ‘Long-Term Natural Gas Contracts and Antitrust Law in the European Union and
the United States’ (2011) 4(3) Journal of World Energy Law and Business 260.
440  Joint purchases of US LNG

(TFEU).19 Alternatively, it may also be caught under the EU Merger Control Regulation.20 The applicable
legal framework depends essentially upon how the cooperation is structured. If it is structured through a spe-
cific project company and amounts to a so-called ‘full-function joint venture’, then Article 101 TFEU is not
applicable and the cooperation is assessed against the provisions of the EU Merger Control Regulation. This
article assumes a cooperation that falls short of a full-function joint venture and examines the applicability of
Article 101 TFEU to such cooperation. This refers to the situation in which the corporate vehicle used to
purchase US LNG is not fully separate from its ‘parent’ companies due to its not having been created to play
an active role on the LNG supply markets. This may be the case because, eg the purchase vehicle either just
transfers the LNG to the parents or relies almost entirely upon sales to or purchases from the companies that
created it.21 There is a body of case law on the treatment of joint production and sale of LNG through full-
function joint ventures under the EU Merger Control Regulation, but these cases are not discussed in this
article.22
Article 101(1) TFEU prohibits agreements between two or more undertakings only where such agree-
ments are likely to have an ‘appreciable adverse impact’ on the market.23 This negative effect on competition
will usually only materialize when the cooperating parties are actual or potential competitors. Where LNG
purchases by a European consortium comprising gas supply companies from different EU Member States are
concerned, one can assume that parties are at least potential competitors. While the participating companies
might act primarily on different geographical markets (ie in their immediate home states) they have the cap-
ability to enter each other’s markets in a relatively short period of time and without prohibitively high costs.
The prohibition under Article 101(1) TFEU is relative, rather than absolute, in two respects.
Firstly, it is possible for Article 101(1) not to apply to a specific cooperation arrangement on the basis
that there is no likely and appreciable effect on the competition that would have existed in the absence of the
arrangement.24 There is no presumption of anticompetitive effects and the effects must be likely and appre-
ciable. If it cannot be concluded that the agreement has likely and appreciable anticompetitive effects, the
Article 101(1) prohibition does not apply. However, this non-application should not be understood as an in-
stance of the use of a US-style ‘rule of reason’ kind of doctrine in the EU legal system.25 Similarly, this assess-
ment under Article 101(1) should not be confused with carrying out an assessment of the pro- and
anticompetitive effects of an agreement. This only takes place in the context of Article 101(3) TFEU, dis-
cussed below.26

19 Where the conduct does not give rise to competition concerns at a horizontal level, between parties in the joint purchasing vehicle, there
is a need to ensure that there are no competition concerns in the vertical relationship between buyers and sellers in respect of the deal.
This article focuses on the horizontal issues. On the question of vertical relationships, see K Talus, Vertical Natural Gas Transportation
Capacity, Upstream Commodity Contracts and EU Competition Law (Kluwer Law International 2011).
20 Council Regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations between undertakings [2004] OJ L24/1.
21 Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings [2008] OJ
C95/1.
22 For example, see Case COMP/M.6477 – BP/ Chevron/ ENI/ Sonangol/ Total/ JV, decision of 16 May 2012.
23 Case T-328/03, O2 (Germany) v Commission [2006] ECR II-1231, para 68. For concepts relating to art 101 TFEU, such as the meaning
of ‘undertaking’, ‘economic activity’, ‘restriction of competition’, see, in particular, O Odudu, The Boundaries of EC Competition Law: The
Scope of Article 81 (OUP 2006).
24 Guidelines on the applicability of art 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements
[2011] OJ C11/1.
25 Case T-65/98, Judgment of 23/10/2003, Van den Bergh Foods v Commission (Rec 2003, p II-4653), para 106; Case T-112/99 Judgment
2001-09-18 Métropole Télévision - M6 and Others v Commission. See also a contrario: Case C-552/03 P Order 2006-09-28 Unilever Bestfoods
(anciennement Van den Bergh Foods) v Commission, para 13.
26 For the relationship between arts 101(1) and 101(3) TFEU, see in particular, O Odudu, The Boundaries of EC Competition Law – The
Scope of Article 81 (OUP 2006). Today, this distinction is less important than in the past but still relevant for burden of proof questions
(see below at Section ‘Efficiency gains and joint purchasing of US LNG’. For more details, see R Which and D Bailey, Competition Law
(8th edn, OUP 2015) 120.
 Joint purchases of US LNG  441

Secondly, Article 101(3) provides another option for escaping the prohibition under Article 101(1)
TFEU. In certain cases, arrangements that have negative effects on competition and are caught by Article
101(1) may nevertheless be accepted due to certain positive effects that stem from them. The wording of
Article 101 would suggest that these positive effects should be considered under Article 101(3).27 The ration-
ale of this provision is to enable assessment of the efficiency considerations, which is a necessary part of
the more economic effects-based approach to competition constraints now prevalent in both the EU and
the USA.
In order to facilitate the application of Article 101 TFEU, the Commission has issued interpretative no-
tices and guidelines, as well as block exemption regulations that all cover certain situations. Given the market
shares and size of many of the potential participants in such purchasing vehicles, many of these notices,
guidelines and block exemptions do not directly apply to joint purchasing of US LNG28 and, as such, the
main guidance is found in the guidelines on the applicability of Article 101 TFEU to horizontal cooperation
agreements29 and the guidelines on the application of Article 101(3) TFEU.30 The next section focuses on
the application of Article 101 TFEU to joint purchasing schemes.

3. LNG FROM THE USA: EU COMPETITION LAW ISSUES

The petroleum industry, and the energy industry more generally, has a long history of cooperation. Joint ex-
ploration and production is common in the oil and gas industries, and in the power production industries in
general. With a view to sharing risk and costs, oil and gas exploration and production projects are often car-
ried out through joint ventures between various upstream oil and gas companies. In view of the significant
costs involved in such projects, large nuclear power plants can built by consortia comprising energy-intensive
industry and/or power producers. The rationale behind joint purchasing of LNG is similar to these other
forms of joint production: no undertaking acting alone would be large enough to engage in LNG imports
from the USA, due to the limited size of the individual undertakings and intended projects, but together the
undertakings concerned can pool their demand and enable the procurement of US LNG.
Joint purchasing can be carried out by a jointly controlled company, by a company in which many other
companies hold non-controlling stakes, through a contractual arrangement or even under looser forms of co-
operation.31 Such cooperation can take different forms in the sense that it may be restricted to joint purchas-
ing or it may include joint commercialization in addition to joint purchasing. These two alternatives pose
different antitrust issues and are discussed separately below.

Joint LNG purchasing under EU competition law

Joint purchasing arrangements usually aim at the creation of buying power, which can lead to lower prices or
better quality products or services for consumers. However, buying power may, under certain circumstances,
also give rise to competition concerns.32 As noted in the Guidelines for the application of Article 101 TFEU,
this is the case where joint LNG purchasing is concerned: parties to the purchasing vehicle are likely to pos-
sess significant market power and have significant market shares. One issue to consider in this regard is the
importance of the US LNG in the total portfolio of the participant company. However, regardless of this
issue the size of the companies involved remains a potential concern when evaluating the legality of the ar-
rangement. Other difficult or sensitive issues include the foreclosure of other possible purchasers, collusive

27 This provision is discussed further below at Section ‘Efficiency gains and joint purchasing of US LNG’.
28 For example, notice on agreements of minor importance which do not appreciably restrict competition under art 101(1) of the Treaty on
the Functioning of the European Union (De Minimis Notice) [2014] OJ C291/1.
29 See n 24.
30 Guidelines on the application of art 81(3) of the Treaty [2004] OJ C101/97.
31 See n 24.
32 ibid.
442  Joint purchases of US LNG

behaviour or outcomes brought about due to commonality of costs, and the exchange of commercially sensi-
tive information.33
The Guidelines note that:

joint purchasing arrangements may lead to a collusive outcome if they facilitate the coordination of the
parties’ behaviour on the selling market. This can be the case if the parties achieve a high degree of
commonality of costs through joint purchasing, provided the parties have market power and the market
characteristics are conducive to coordination.34

When considering this issue, it should be noted that LNG export projects in the USA are structured in a var-
iety of ways: certain projects operate according to a tolling concept, where the companies involved only pro-
vide the liquefaction services. Here, the buyer of the tolling service will procure the natural gas separately.
The customer can be a US upstream company looking to sell LNG shipments abroad or it may be a foreign
buyer sourcing the gas from the US markets and then exporting it. Dominion Cove Point project is an ex-
ample of this type of project that only offers a liquefaction and export service. It does not own or procure the
gas used as feedstock for LNG.35
The other option is for the project to offer both the natural gas and the tolling service as bundled prod-
ucts. Under this arrangement, the customer buys the product after it has been liquefied and pays the LNG fa-
cility both for the natural gas used as feedstock for LNG and for the liquefaction service. Cheniere’s Sabine
Pass project offers this type of bundled service in which the gas used as feedstock for LNG is procured.36
Because of these different types of services that different LNG export projects offer, different scenarios for
the purchasing of LNG may be envisaged: it may be that the parties to the purchasing consortia procure the
natural gas independently. Where this occurs, the companies involved buy the liquefaction and transportation
services jointly, but buy the natural gas independently on the US markets. The other alternative is for the
consortia to cooperate in all aspects of the operation, either by purchasing the natural gas jointly or by buying
a bundled product where both the natural gas and the liquefaction service is offered in one package.
From an EU competition law perspective, the first alternative is easier to accept as the cost structures of
individual parties to the consortium are further away from each other. One of the concerns from the competi-
tion law perspective in respect of joint purchasing is the commonality of costs, as a high degree of commonal-
ity will easily result in collusive outcomes.37 Where the gas is purchased separately, the degree of
commonality is of course lower. This is one alternative in addressing the concerns relating to commonality of
costs.
Finally, the implementation of a joint purchasing arrangement may require the exchange of commercially
sensitive information such as purchase prices and volumes. The exchange of such information may facilitate
coordination with regard to sales prices and output and thus lead to a collusive outcome on the selling mar-
kets.38 In order to address concerns over information exchanges, the parties will have to consider a combin-
ation of erecting Chinese walls, creating rules and protocols to ensure that commercially sensitive or strategic
information is not exchanged, and engaging a compliance officer to oversee all exchanges of information.
Strategic and sensitive information in this context could, eg include data about downstream prices, demand,
future investments and so on.

33 ibid.
34 ibid.
35 <https://www.dom.com/corporate/what-we-do/natural-gas/dominion-cove-point> accessed 1 October 2016.
36 See <http://www.cheniere.com/terminals/sabine-pass/trains-1-6/> accessed 1 October 2016.
37 See n 24.
38 ibid.
 Joint purchases of US LNG  443

In addition to pure purchasing schemes and the application of EU competition law to this situation, the
cooperation engaged in may also include joint commercialization.39 From a competition law perspective, this
type of wider cooperation is somewhat more problematic. It is considered below.

Joint commercialization of US LNG under EU competition law

The Guidelines explain that:

Commercialisation agreements involve cooperation between competitors in respect of the sale, distribu-
tion or promotion of their substitute products. This type of agreement can have widely varying scope, de-
pending on the commercialisation functions covered by the cooperation. At one end of the spectrum,
joint selling agreements may lead to a joint determination of all commercial aspects relating to the sale of
the product, including price. At the other end, there are more limited agreements that only address one
specific commercialisation function, such as distribution, after-sales service, or advertising.40

While joint commercialization may in certain circumstances create efficiency gains, in the energy sector such
arrangements are often not tolerated by the European Commission and its Directorate General for competi-
tion. Although the Commission has stated that an exemption is available if there are compelling reasons to
justify it, most of the lines of argumentation put forward in favour of joint selling of energy have been unsuc-
cessful.41 In the Corrib Gas Field case, a production joint venture comprising Statoil, Enterprise Energy
Ireland and Marathon applied for an exemption for the joint marketing of gas produced at the field for the
first five years of production. They argued that this measure was necessary to balance the countervailing pur-
chasing power of the incumbent State-owned Irish energy companies, Bord Gais E ireann and the Electricity
Supply Board. After the Commission raised concerns and initiated an examination, the Corrib partners re-
frained from implementing the joint marketing arrangement and withdrew their application for an exemption.
Two factors appear to have given rise to doubts as to the economic benefits required under EU competition
law. The first of these was the fact that the field would be Ireland’s only domestic gas field following exhaus-
tion of the existing gas field at Kinsale. The second was that the ongoing process of liberalization would in-
crease the number of eligible customers and that the Irish customer base for its power market was
particularly likely to continue its rapid growth, thus offering potential sales outlets for gas suppliers. Arguably,
the relative market strength of the partners, especially Statoil, also influenced the decision.
On another occasion, the Commission warned Norwegian gas producers that the joint sale of Norwegian
gas through the Gas Negotiation Committee (GFU) infringed Article 101(1) TFEU as well as the corres-
ponding provision of the EEA Agreement.42 The GFU comprised Statoil and Norsk Hydro and negotiated
gas sale contracts with buyers on behalf of all other natural gas producers in Norway. The Commission took
the view that this negotiation amounted to the fixing of sale prices, volumes and all other trading conditions.
The GFU had entered into a large number of long-term supply agreements with European gas operators
which had prolonged the adverse effects of joint selling schemes for several years and led to significant rigid-
ity and lack of liquidity in the European gas market.
Given the likely market shares of the participants in the purchasing vehicle, joint marketing generally
amounts to a significant concern under EU competition law. Agreeing on the price of the natural gas or the

39 See the article by George Raitt ‘Shifting the Goalposts: Current Issues in Australian Competition Law Affecting the Energy Sector’ (2016)
Journal of World Energy Law and Business (in this issue).
40 See n 24.
41 However, in Case COMP/M.6477 – BP/ Chevron/ Eni/ Sonangol/ Total/ JV, the Commission did accept the joint selling arrangement be-
cause of the joint venture’s modest anticipated market share, the presence of a number of credible competitors on the market concerned
and competitors’ unchanged ability to access regasification terminals.
42 Commission Information on gas joint selling and price fixing by the Norwegian Gas Negotiation Committee, (2001) 5 CMLR Antitrust
Reports, 27–28; Commission press release IP (01) 830 (13 June 2001).
444  Joint purchases of US LNG

division of markets or customer groups are examples of the most difficult issues that fall to be addressed.
One issue to consider in this respect is the relative importance of the volumes of LNG sold through a joint
commercialization scheme as compared to the overall volumes of natural gas on the markets, volumes sold
by individual parties to the project and the modalities of selling the gas (direct sales to customers as against
sales through a gas exchange).
If the cooperation is caught by Article 101(1) TFEU, the focus then moves to the possibility of obtaining
an individual exemption under Article 101(3) TFEU. This issue is discussed below.

Efficiency gains and joint purchasing of US LNG

Article 101(1) TFEU may be declared inapplicable if the conditions laid down in Article 101(3) TFEU are
met. Where an arrangement is caught by the prohibition laid down in Article 101(1), the parties may invoke
Article 101(3) as an efficiency-based defence. In order to be found to have pro-competitive effects, the ar-
rangement in question must contribute to improving the production or distribution of goods or to promoting
technical or economic progress while allowing consumers a fair share of the resulting benefit. At the same
time, the agreement cannot impose on the undertakings concerned restrictions which are not indispensable
to the attainment of these objectives or afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.
While the competition law authorities bear the burden of proof under Article 101(1) TFEU, this shifts to
the defendant companies if they are seeking exemption under Article 101(3) TFEU. Defendants must satisfy
all four Article 101(3) conditions cumulatively.
According to the Commission Guidance Paper on Article 101(3) TFEU, various forms of efficiency gains
can be taken into consideration under Article 101(3) TFEU, including both cost-related and qualitative effi-
ciency gains.43 Possible cost-related efficiency gains include integration of existing assets (either tangible or
intellectual), economies of scale (declining cost per unit of output when output increases) and economies of
scope (combining operations of producers resulting in lower distribution costs per unit distributed). Such
efficiency gains may, eg stem from an arrangement where companies pool their assets to achieve some-
thing that would have been impossible to achieve alone or where companies agree to share tasks if a task
such as distribution can be performed more efficiently by one of them.44 Qualitative efficiencies, where the
efficiency gain is not so much related to cost reduction as to efficiencies of a qualitative nature are not dis-
cussed here.
On the Commission’s interpretation, any efficiency claim must show: (i) the nature of the claimed effi-
ciencies (ie are they objective); (ii) the link between the agreement and the efficiencies (ie direct causality);
(iii) the likelihood and magnitude of each claimed efficiency (ie the value of the efficiencies); and (iv) how
and when each claimed efficiency would be achieved.45
Generally speaking, joint purchasing arrangements can create significant efficiency gains. They can lead to
cost savings such as lower purchase prices or reduced transaction, transportation and storage costs, through
economies of scale. There are a number of ways in which joint purchasing of US LNG could be argued to
create efficiency gains and, therefore, satisfy the conditions laid down in Article 101(3) TFEU. Given that

43 Guidelines on the application of art 81(3) of the Treaty [2004] OJ C101/97.

44 ibid. According to the Commission, the rationale of the first condition under art 101(3) TFEU is to define the kind of efficiency gain that
can be considered under art 101(3) TFEU. Similarly, it is of the opinion that the objective of the analysis is to ascertain what the objective
benefits created by the agreement are and what the economic importance of these efficiencies is. Given that the applicability of art 101(3)
TFEU depends on the balancing of pro- and anticompetitive effects, the link between the agreement and the claimed efficiencies has to be
ascertained. These improvements must not merely be subjective (eg having a positive effect on the balance sheet of the parties). The par-
ties must be able show appreciable objective advantages in the production and distribution of the goods of such a character as to compen-
sate for the competitive disadvantages which they cause. (For these latter, see Joined Cases 56/64 and 58/66, Consten and Grundig [1966]
ECR 429.)
45 ibid, paras 51–56.
 Joint purchases of US LNG  445

joint purchasing allows the opening up of a new supply source, one possible option would be to base the ar-
gument put forward on security of supply gain considerations. The main challenge with this option is that
usually the accepted efficiency gains under Article 101(3) must be of an economic nature and quantifiable.
While it is in principle possible to argue a defence based on security of supply under Article 101(3) TFEU,
the often abstract nature of such arguments presents a challenge.46 The analysis put forward has to be case-
specific and take all relevant facts into consideration. The argument put forward could also be built around
the enabling effect of the consortium and the economies of scale achieved through aggregate demand. As
long as the parties can show that the aggregation of demand is a precondition for the project, the efficiency
gain in question should be quantifiable.
The proportionality requirement—‘cannot go any further than what is necessary’—could include at least
the following elements:

i. the participation of buyers in the consortium: how are its members selected, and is participation
open at the initial stages of forming of the consortium?
ii. commonality of costs: do the buyers source the gas jointly or separately?
iii. what is the exact scope of the cooperation?

4. CONCLUSION
This article has examined the application of EU competition law to joint purchasing of LNG from the USA
by EU-based companies. Given that current LNG export capacities—at least the available long-term capaci-
ties—have mostly been contracted for, the issue is not a pressing one for current LNG export projects.
However, new facilities are being planned and short-term capacities in existing facilities are likely to be avail-
able. The analysis outlined above shows that while joint purchasing of US LNG is in principle possible under
the EU competition law regime, the devil is in the detail, as always. The cooperation among the EU compa-
nies involved must be structured in a way that takes into account the constraints imposed by EU competition
law. Some of the key concerns in this respect include the possibility for companies to participate (open or
closed group), the size of the undertakings participating in the consortia (market power of each participant
and relative importance of LNG in the overall supply) and the commonality of costs and information ex-
changes. As long as these concerns are addressed, joint purchasing of LNG from the USA by European com-
panies remains an option. The main question then is whether the price is right.

46 See Kim Talus, Vertical Natural Gas Transportation Capacity, Upstream Commodity Contracts and EU Competition Law (Kluwer Law
International 2011), in particular c 6, ‘Security of supply as objective justification’.