The gas cap, an emergency revolution

The gas cap, an emergency revolution

The energy crisis caused by Russia’s war in Ukraine has meant that the European Union has had to improvise emergency solutions and one of them, not yet resolved, is the emergency revolution that would mean establishing a maximum price at which gas imports can be paid.

The idea emerged in an informal conclave held by the leaders of the countries and the community institutions in March in Versailles (France), just two weeks after Russia had launched an invasion of Ukraine that caught the Twenty-seven by surprise.

Gas was then twenty times more expensive than a year earlier and, among other emergency solutions, floated the possibility of limiting the price at which gas would be paid in the EU.

The European Commission also said at the time that it would study “time limits on prices” and Mario Draghi, then prime minister of Italy and former president of the European Central Bank, strongly defended the idea.

He did so in Rome, in a meeting with the prime ministers of Spain, Greece and Portugal, countries that have been very united since then in the European energy debate.

While the exit from the pandemic overlapped with the largest military conflict in Europe since the Second World War, a radical idea appeared on the table that invited the EU, which was already advancing from fright to fright, to enter a new unexplored territory.

The concept of imposing a maximum price at which it is accepted to buy gas in the EU, an essential hydrocarbon for industry and households that the Twenty-seven import at 83% (2021), was taking flight and changing shape.

Read Also   Market tries to cut 3-week losing streak. soaring returns

It was considered to apply a cap only to Russian gas, limit it to that which arrives by pipeline or also include liquefied natural gas (LNG) that arrives in LNG carriers.

It was also explored whether to link the maximum price to the price of the petroleum or whether to use as a reference other gas indicators in Asia or the US and sometimes it was also assimilated to systems similar to the “Iberian mechanism”, which limits the impact of gas on the formation of electricity prices in Spain and Portugal.

But what if producers refused to sell? Those doubts led to the formation of two blocs of member states, which have remained at opposite poles until now.

Fifteen countries such as Italy, Spain, France, Poland, Belgium, Slovenia, Portugal or Greece, claimed the ceiling, while Germany and the Netherlands led the group where Hungary, Baltic and Nordic countries are also located.

The debate was focused and concepts such as “dynamic corridor” or “price basket” and euphemisms that marked red lines of some capitals, such as security of supply or financial stability, appeared.

The record prices of August, when European partners competed with each other to attract LNG carriers and fill gas reserves for the winter, accelerated the debate as soon as the summer ended.

Although the situations of each country are very different, the realities of two of the most distant countries in the debate, Germany and Spain, illustrate why the negotiation is so complex.

Germany, the EU’s economic engine, imported 60% of its gas from Russia in 2021 and the war in Ukraine has radically changed that pattern because Moscow has been gradually reducing its exports until almost turning off the tap.

Read Also   Amgen says experimental anti-obesity drug has promising duration

Berlin aims to reduce its gas consumption by 20% and, even so, it fears it will not have enough to keep its industry running, heat homes or generate electricity in a 2023 that is announced even narrower in that hydrocarbon than 2022.

But Germany has money: it does not want to risk and prefers to guarantee its supply, even at a very high price, and then subsidize its consumers.

Spain, on the other hand, in addition to gas pipelines with Algeria, is the country with the most LNG terminals in the EU and does not contemplate supply problems. But it does not have as much muscle as economic Germany to help its citizens and businesses that cannot cope with the energy shortage.

Although the gap remains large, in the conclusions of the European Council held on Thursday in Brussels, leaders urged their ministers to find a solution on Monday at an ordinary energy council to be held in the EU capital.

Ministers agreed on Tuesday how to deactivate the so-called “market correction mechanism” and much of its scope, but left two crucial points pending: how to activate it and what maximum price to set.

The latest draft, based on a proposal presented by the European Commission last November, proposes to cap at about 200 euros per (MWh) the purchases linked to the TTF index of Amsterdam, which last August touched 350 euros.

According to that proposal, in order to activate the cap, the price of hydrocarbons in wholesale contracts linked to the TTF would also have to be EUR 35 higher than the average price on the liquefied natural gas market.

Read Also   Shakira and Lewis Hamilton Spark Romance Rumors with Adorable Smiling Photo

Leave a Comment