The energy ministers of the European Union Member States and the European Commissioner for Energy, Kadri Simson, will meet in Brussels on Friday 30 September for an extraordinary meeting at which they will discuss, among other things, new emergency measures to alleviate high gas prices, despite continuing divisions over the idea of a general cap.
This debate, in camera, will be fuelled in particular by a non-paper presented by the Commission to the Member States’ ambassadors to the EU (Coreper) on Wednesday 28 September, a few hours after the receipt of a letter from 15 Member States calling for a cap on the price of fossil gas for all wholesale market transactions (see EUROPE 13031/8).
While this idea is supported by a majority of Member States, others, such as Germany and the Netherlands, are much more reluctant.
This is also the case for the European Commission, which in its non-paper formulates a series of criticisms against a general gas price cap.
In its view, there is a risk that prices will be pushed towards the cap so that it becomes a floor price, given the current context of gas shortages.
“When the price cap level is hit, it means, by definition, that there is more demand for gas than available supply. As the cap is likely to be hit in multiple Member States at the same time, there would be no market incentive to ensure cross border flows through price differentials”, the paper argues.
The alternative would be to “create an entity to replace the market and (...) to distribute gas across the Member States”. But such a body does not currently exist and would be difficult to set up in the short term, a senior EU official said.
The Commission is also concerned that a general cap would increase the demand for gas by reducing the price. The measure should therefore also be accompanied by a “significantly more drastic demand reduction framework, including curtailment”.
“Establishing the appropriate level for the cap would be a challenging exercise due to internal and global market dynamics and entailing risks from the point of view of security of supply”, the EU institution’s document also states.
In its view, this would require finding significant financial resources to attract gas to Europe, if world gas prices were to rise above the cap.
This is particularly true for liquefied natural gas (LNG) deliveries, which can more easily be redirected to other markets such as Asia.
“The risk of triggering supply disruptions from third countries supplies is higher for a generalised wholesale price cap than it is for a price cap on the imports of pipeline gas”, the Commission document notes.
The Commission is not closing the door on measures to limit the price of gas imports by pipeline from partner countries, although it favours dialogue to reach a common agreement.
Towards a generalisation of the Iberian system?
The institution is also ready to “discuss the development of a temporary EU framework to limit the influence of high gas prices on electricity price formation”.
This option, which appears to be close to the system in place in Spain and Portugal (see EUROPE 12968/4), would consist of capping the price of gas used for electricity generation at a level that contributes to lower electricity prices without leading to an overall increase in gas consumption.
“The difference in cost between the capped prices and the market prices would be borne by the Member States’ electricity systems”, the document says.
Advocating for the generalisation of the Iberian system to the whole of the EU, the office of Agnès Pannier-Runacher, the French Minister for Energy Transition, considered that such an instrument could also be set up “by plates, meaning by sub-groups of very well interconnected Member States”.
A cap on Russian gas prices?
The Commission is also putting forward the idea of a limited cap on Russian gas import transactions, both pipeline imports and LNG, in order to reduce Russia’s revenues and its ability to finance the war in Ukraine.
It also wants the EU to negotiate a reduction in the price of LNG with reliable partners such as Norway, for example, by mobilising the EU energy platform.
TTF and liquidity
The Commission also intends to develop an alternative benchmark to the TTF for LNG price formation before the winter season. And it is preparing initiatives on the rules applicable to collateral used for margin calls in derivatives markets and market liquidity.
Agreement on a first emergency package in sight?
Prior to the gas debate, ministers will try to reach a political agreement on a package of three emergency measures presented by the Commission on 14 September, in the form of a proposal for an EU Council regulation (article 122 of the Treaty on the Functioning of the EU), in order to tackle high energy prices (see EUROPE 13021/1, 13022/12).
The proposed regulation sets an indicative target for Member States to reduce their overall electricity consumption by at least 10% by 31 March 2023 and a binding target to reduce their gross electricity consumption by at least 5% during peak tariff hours.
The text also includes a cap of €180/MWh on the revenues of electricity producers using “inframarginal” technologies such as renewables, nuclear and lignite, i.e. producers with the lowest marginal costs.
The proposal also introduces a temporary solidarity contribution that would apply to excess profits generated by companies in the oil, gas, coal and refining sectors.
In order to give more flexibility to Member States, the latest draft compromise of the Czech Presidency of the EU Council, on which the Ministers will try to agree, includes several significant changes compared to the Commission’s proposal (see other news).
Update on Nord Stream gas pipelines
In addition, the Danish minister, supported by Germany and Sweden, will brief his counterparts on the recent gas leaks in the pipelines Nord Stream 1 and 2 near the island of Bornholm, Denmark (see EUROPE 13031/3).
Although this is a ‘miscellaneous’ item on the meeting’s agenda, several Member States could take the floor, a senior EU diplomat said. The diplomat assured that all Member States support an in-depth investigation to determine the origin of the leaks, while stressing that it was likely a deliberate act.
See the Commission’s non-paper: https://aeur.eu/f/3bh (Original version in French by Damien Genicot)