European states push for gas price cap on global supplies

EU commission wants to cap only Russian imports but some countries are demanding a broader measure

Kadri Simson, European Union's energy commissioner, left, and Jozef Sikela, Czech Republic's industry minister, during a news conference after a meeting of energy ministers of the European Union on Friday, Sept.  9, 2022.
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The European Commission's proposal to cap Russian gas prices drew mixed reactions from member states assembled for an extraordinary energy summit in Brussels on Friday, with several pushing to cap all gas imports.

Ministers discussed proposals made by European Commission President Ursula von der Leyen on Thursday to confront “astronomic” electricity prices and market volatility triggered by Russia’s invasion of Ukraine.

The measures include capping the revenue of electricity producers with low production costs, a gas price cap, reducing demand and supporting the liquidity needs of energy utility companies.

The commission is expected to put forward legislation “within days”, said Czech Minister of Industry and Trade Jozef Sikela during a press conference.

The European Union is striving for a united approach to the upheaval of its energy markets. Policies have so far been “excessively nationally focused and could undermine the goals of calming energy markets”, wrote Bruegel, a Brussels-based think tank, in a recent report.

“If we start imposing national solutions, that’ll be the end of the energy market,” said a senior EU official on Thursday.

The gas price cap is among the most debated items currently under discussion. While Ms van der Leyen on Thursday suggested a “price cap on Russian gas”, Mr Sikela did not refer to a Russia-specific measure.

“The price cap is from the market point of view the most difficult case and we need a little bit more time to elaborate on the impacts,” he said when questioned by reporters.

The commission is worried that setting a general price cap will lower Europe’s chances of importing gas in a highly competitive world market.

“It needs to still make sense for gas suppliers to come to Europe and provide gas,” said the senior European official.

European Commissioner for Energy Kadri Simson described Ms von der Leyen’s proposal to cap Russian gas as “reasonable”.

“The general price cap, including [liquefied natural gas] imports, could present a security of supply challenge,” she told journalists.

“There is a very strong competition on the energy market, and right now it is important that we can replace the decrease in Russian volumes with alternative suppliers.

“It makes sense to target only Russian gas. Russia is gaining huge profits by manipulating and limiting supply artificially to drive up prices. The gap would reduce these profits.”

But several European energy ministers publicly stated their support for a general gas price cap on Friday.

Belgian prime minister Alexander De Croo told news website Politico that if Europe sets the price cap 5 per cent higher than Asia, where gas prices are significantly lower, Europe will remain an attractive market.

Belgium’s Energy Minister Tinne Van Der Straeten described a Russian gas cap as a “purely political objective”.

Roberto Cingolani, Italy’s minister for ecological transition, said that “15 countries spoke clearly in favour of a generalised price cap, on any gas imports, not just of one operator or one country”.

There are fears that a cap on Russian gas would lead to retribution from Moscow and derail the European economy even further. Hungarian Foreign Minister Peter Szijjart said on Friday that capping Russian gas prices would go against European and Hungarian interests.

“If price restrictions were to be imposed exclusively on Russian gas, that would evidently lead to an immediate cut-off in Russian gas supplies. It does not take a Nobel Prize to recognise that,” he said.

Ms Simson told journalists that the European Commission was discussing this possibility: “We have been preparing ourselves for this moment, that Russia decides to cut off gas supplies totally.”

She said that “technical meetings with member states who are most dependent on Russian gas” would intensify.

“I heard some claims that they are facing difficulties to find alternative supplier routes,” said Ms Simson, who will soon travel to Algeria to discuss gas imports.

“No doubt ahead of us is a very difficult winter but our energy union is strong and we will prevail.”

Russian pipeline gas accounted for 40 per cent of all gas Europe imported before President Vladimir Putin ordered the invasion of Ukraine in February. Now, it accounts for only 9 per cent.

State-owned energy company Gazprom halted gas supplies to Europe via a major pipeline last week.

Mr Sikela described discussions regarding capping Russian gas imports as having more of a psychologic than an economic effect.

“We have to understand with the current consumption of Russian gas, the Russian gas is not market making anymore, it’s more like a psychological impact, all these statements from Gazprom, rather than a direct price impact,” he said.

Updated: September 09, 2022, 6:00 PM