EU sets out road map to limit gas price fluctuation but no cap

EU commissioner warns that the continent faces dangers of a gas supply crisis

European Commission President Ursula von der Leyen, left, and European Commissioner for Energy Kadri Simson at the European Parliament in Strasbourg, France, on Tuesday. EPA
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The European Commission on Tuesday unveiled its latest temporary proposals to rein in soaring EU energy prices caused by Russia's invasion of Ukraine, and Moscow's decision to cut off Europe's gas supply.

They include joint purchasing, intervening in energy markets to reduce price volatility and establishing standard solidarity agreements in case some countries are entirely cut off from supplies.

The commission hopes to implement its suggestions in the coming weeks so that Europe is ready in March to start filling its gas tanks for the winter of 2023. They are currently 92 per cent full.

“We do hope it can be adopted swiftly so that it’s in place for the winter,” a senior EU official said.

“We know that the next winter, 2023-2024, will be more challenging than this one because of low Russian supplies.”

The proposals are to be discussed this week at a European Council meeting in Brussels and among the EU’s energy ministers next week in Luxembourg.

“We are strong when we are together,” European Commission chief Ursula von der Leyen said in Strasburg, France.

“We know European solidarity is the very best insurance policy that member states can have in a crisis.

“This year, we saw our companies outbidding each other on these volumes on the spot market and that drives price up."

The commission has suggested that energy companies voluntarily establish a gas-buying consortium.

But aggregation of demand will be mandatory for at least 15 per cent of the volumes needed to fill European gas storage tanks.

“This is around 13.5 billion cubic metres of gas, equivalent to the use of Greece, Bulgaria, Croatia and Slovenia combined,” said Energy Commissioner Kadri Simson.

“It is meaningful amount that would be attractive to sellers in terms of refilling storage.”

A senior EU official said that demand aggregation would be the “core” of the system.

“We would contract out to a service provider to establish the demand aggregation mechanism and IT tool that could help bring this together,” they said.

“We propose that member states take measures for their companies to join into that.”

The commission believes that the Dutch TTF benchmark, which was primarily designed for pipeline gas, does not reflect the market any more.

Therefore, the commission is working on developing a complementary liquefied natural gas-specific benchmark for the next filling season.

“TTF prices are pushed up by infrastructure bottlenecks and regional dynamics,” Ms Simson said.

The commission has called on the Agency for the Co-operation of Energy Regulators to immediately prepare a price assessment tool to collect “real time information on all daily LNG transactions", she said.

“Based on that, they can establish a benchmark by the end of March.”

Until then, the commission suggests creating a market correction mechanism in the form of a TTF cap. Details must still be decided with the EU’s 27 member states.

“We cannot exclude a real supply crisis with a shortage of gas and for this solidarity and demand reduction are a key,” Ms Simson said.

The commission's latest plan does not include a gas price cap despite calls from some of its members, given the opposition from Germany, which fears scaring off suppliers that have stepped in to replace Russia as the bloc's main source of gas.

Updated: October 23, 2022, 5:51 AM