EU leaders struggle to find short-term solution for energy shortage

The war in Ukraine has prompted the EU to seek to cut Russian gas use by two-thirds this year

Lorry drivers take to the streets of Madrid in Spain to protest against the high price of fuel. AP

EU leaders failed on Friday to agree a short-term solution to the energy market crunch made worse by Russia's invasion of Ukraine, but did offer a compromise for Spain, where increasing fuel prices prompted 12 days of blockades by lorry drivers.

A debate on whether to cap energy prices, pitting some southern countries against Germany and the Netherlands, pushed the second day of an EU summit into the evening.

In the end, they settled on a trade-off and left a number of matters unresolved.

Quote
We've seen some countries going towards other countries to negotiate their own contracts. That is not the best way as we are pushing prices up
Emmanuel Macron, French President

The war in Ukraine has pushed energy prices to record highs and prompted the EU to seek to cut Russian gas use by two-thirds this year by finding alternative supplies and increasing use of renewable energy.

While the Mediterranean rim states pressed for a cap on wholesale gas prices to protect poorer households, opponents said this would mean public cash subsidising fossil fuels.

The leaders charged the European Commission with urgently assessing what short-term options, from price caps to tax rebates, could help to reduce gas and electricity prices.

Italian Prime Minister Mario Draghi told a news conference after the summit that the EU executive would discuss options with large oil and electricity companies.

“We expect to have some proposals by May,” he said.

Spain and Portugal won permission for temporary measures to curb their electricity prices.

European Commission President Ursula von der Leyen said this “special treatment” was possible because the Iberian Peninsula was largely detached from the rest of the EU power grid, although the EU executive will also assess short-term plans proposed by other members.

Earlier on Friday, US President Joe Biden committed to helping Europe with more liquefied natural gas deliveries as it grapples with the need to reduce dependency on Russia.

Russia supplies 40 per cent of the gas that EU needs for heating and power generation and more than a quarter of its oil imports.

Belgian Prime Minister Alexander De Croo, who backed southern European countries' push for market intervention, said governments across the EU faced mounting public pressure.

“Today is about the everyday issues of the people and that is the electricity and gas invoice of the people,” he said. “We are at war, and in a war you need to take extraordinary measures.”

There was agreement among the 27 member states on a plan for joint purchases of gas to reduce prices.

The European Commission said it is ready to lead negotiations on pooling demand and seeking gas before next winter, following a similar model through which the bloc bought coronavirus vaccines on behalf of member states.

“We've seen some countries going towards other countries to negotiate their own contracts. That, and I told colleagues this, is not the best way as we are pushing prices up,” French President Emmanuel Macron said.

However, the EU remained divided over whether to ban Russian oil and gas imports in addition to the other sanctions it imposed on Moscow since the invasion a month ago.

Europe's dependence on energy from Russia means the question of an embargo, as the US has imposed, is economically risky and no decision was taken on Friday.

Germany, Hungary and Austria were among the most reticent about imposing a ban on Russian oil and gas.

No common position emerged either on Russia's demand this week that “unfriendly” countries must use roubles to pay for its oil and gas.

Mr Draghi said leaders agreed that any such Russian demand for gas exports would represent a breach of contract.

The Kremlin's demand poses a dilemma for countries reliant on Russian energy because, by agreeing to it, they would be shoring up the rouble and channelling hard currency into Moscow, while refusal could mean their energy supplies dry up.

Updated: March 26, 2022, 8:19 AM