Several countries reject Brussels proposal to cap gas prices

European Commission in 'impossible situation', analysts tell The National

A regasification ship arrives at Mukran Port in Sassnitz, Germany. Getty Images

Several countries including France and Spain have rejected the European Commission’s proposal for a temporary gas price cap, put forward earlier this week, and are preparing a response with like-minded partners before an extraordinary energy council in Brussels on Thursday.

Energy Commissioner Kadri Simson, who unveiled details of the proposal on Tuesday, is expected to face a barrage of criticism from energy ministers when they sit down to discuss the proposed emergency cap, which they are not forecast to approve.

A group of 15 European Union members, including France, Spain, Greece and Italy, have been lobbying the commission for months for a gas price cap.

But the EU is deeply divided on the question, with other countries such as Germany and the Netherlands opposing the measure out of fear that it would disrupt supply.

The commission has been put in an impossible situation of having to deliver on something that simply cannot be delivered, said Simone Tagliapietra, senior fellow at the Brussels-based Bruegel think tank.

“I would blame member states for this more than the commission,” he told The National in an email. “I think it is now high time to reset this debate and tackle it differently: via an EU energy crisis fund and a strong EU joint gas purchasing.”

Mr Tagliapietra suggested in a blog post published on Tuesday that Brussels should drop the idea of capping gas prices in favour of an EU fund and joint gas purchasing, which was proposed by the commission in October.

At the time, Ms Simson and her boss, Commission President Ursula von der Leyen, put forward the idea that energy companies voluntarily establish a gas-buying consortium, but that aggregation of demand would be mandatory for at least 15 per cent of the volumes needed to fill storage tanks.

A gas price cap may put at risk much-needed supply in 2023, when Europe will no longer be able to fill its gas storage tanks with Russian supplies, said Mr Tagliapietra in his blog post. A cap would also be distributed unevenly, he argued, with for example Dutch consumers paying to reduce electricity bills in France.

The commission’s gas price cap proposal, which it has called a market correction mechanism, is designed to start on January 1 and only under two conditions: month-ahead prices need to exceed €275 per megawatt hour over two weeks, and the spread between Dutch TTF gas prices and global LNG prices must exceed €58 for 10 trading days within those two weeks.

Two officials from the office of France's Energy Minister Agnes Pannier-Runacher on Wednesday accused the commission of deliberately designing the proposal to only be enacted in case transport and gas supply infrastructure in Europe were to be destroyed.

European Commissioner for Energy Kadri Simson speaks during a press conference on gas prices at the European Parliament in Strasbourg, France. EPA

In its current form, the proposal would not have been applied in August, when month-ahead gas prices peaked at €320 per megawatt hour and five days later fell to €231.

The officials said that the commission had failed to fulfil the mandate that EU leaders gave it in October, when Ms von der Leyen was asked to come up with a proposal to cap gas prices.

“This mechanism does not respond to market realities and is insufficient,” they said, speaking on the condition of anonymity. “The commission now needs to suggest sustainable and workable solutions.”

The officials said that the two ceilings of €275 and €58 proposed by the commission were too high, but they shied away from suggesting alternative figures.

“We are currently consulting with colleagues to see how to approach this proposition,” said one of the officials.

They also pointed out that regasification terminals would start to open in the coming months in Germany, which would mechanically reduce the spread between TTF and LNG prices and further reduce the likelihood of the commission’s proposal being applied.

“We must remember what the point of this mechanism is,” said one French official. “It’s that in the case of extreme tension in LNG supply next year, prices along European coasts do not vary too much and that ships don’t all go to one place but are incited to sell to all European terminals.”

The officials said their point of view was widely shared among EU countries.

Spain’s Energy Minister Teresa Ribera on Tuesday said that her country would “categorically and forcefully” oppose such a proposal, news website El Confidencial reported.

The Italian energy minister said the proposed cap was set too high and the semi-official Athens news agency quoted the Greek minister as saying his government wanted a cap of €150-200.

The commission declined to offer a reaction to such criticism, pointing instead to Ms Simson’s press conference on Tuesday.

She said that it was “crucial” to ensure that Europe could continue attracting LNG deliveries.

“I do believe that our current proposal is a balanced proposal,” she told reporters.