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EU proposes energy emergency measures but dodges gas price cap

EU proposes energy emergency measures but dodges gas price cap

Brussels’ new energy package aims to secure gas supplies for next year.

The European Commission on Tuesday announced a raft of new emergency measures — including seeking a price cap on a key gas trading hub if prices spike — aimed at helping countries source and store enough gas for next year.

The moves, which include asking EU countries to better coordinate joint gas purchasing and setting up a new trading benchmark for liquefied natural gas, are aimed at helping the bloc get enough gas to prevent another energy crisis next winter. The proposal largely sticks to measures acceptable to member countries and dodges areas where there is no consensus, like detailing a price cap on imported gas.

"We've been working very hard in the last month against the fallout of the energy markets, and we have made progress," Commission President Ursula von der Leyen said as she presented the emergency package. "On this basis, we can now take further steps towards a real energy union ... we want to be better prepared for the next filling season."

The EU has already achieved several milestones in securing enough gas supplies for this winter after Russia's invasion of Ukraine threw markets into disarray. The bloc's gas reserves are now 92 percent full while reliance on Russian gas has dropped from 40 percent to below 10 percent. Surging prices are also prompting a steep fall in demand, down an annual 15 percent in September.

Capitals have also secured an additional 24 billion cubic meters of gas this year, according to a new report by the Bruegel think tank — while countries including Germany and Belgium have agreed to extend the lifespan of their nuclear power plants.

Gas futures fell to a low of €107 per megawatt hour on Tuesday, down from a peak of €350 per MWh in late August.

"You cannot count on Russia, and we have to take our decisions in an independent manner," von der Leyen said.

EU leaders are set to discuss the Commission proposal when they meet in Brussels for a European Council summit on Thursday and Friday; the issue will also be debated by energy ministers next Tuesday.

The Commission is also seeking permission from countries to spell out more contentious measures, including default rules that would force them to share gas supplies in emergency situations. Currently, countries are encouraged to set up "solidarity agreements" for this purpose, although just six have so far been set up.

"This is not enough in a crisis of this scope," von der Leyen said.

The EU executive also wants the power to set a temporary price cap on the EU's benchmark gas trading hub, the Dutch TTF, in emergencies due to "episodes of excessive gas prices."

Strengthening joint gas purchasing, in particular, is a "good initiative," said Bruegel senior fellow Simone Tagliapietra, because low Chinese demand for gas this year has helped the EU purchase more LNG from global markets — something that could change in 2023.

The bloc will also mobilize €40 billon from leftover EU regional funds to support businesses and vulnerable consumers facing sky-high energy prices.

It's "extremely important in order to have a nucleus for a European fund ... as certain countries can provide more support than others," Tagliapietra said, keeping an equal level playing field for poorer countries that can't afford to provide multi-billion-euro relief packages for consumers like Germany.


Price cap gap


But some countries aren't happy that the Commission is again dodging their demands.

"These proposals continue to leave a feeling that we are not acting with the speed and intensity that is required," said Spain's Minister for Ecological Transition Teresa Ribera. "We ask that a benchmark for gas prices be proposed to replace the Dutch TTF, but that it be done now."

A group of 15 EU countries wants the Commission to propose a cap on the price of imported gas. But the issue has split capitals, with countries including Germany, Denmark and the Netherlands skeptical of setting a price limit, nervous it may affect the bloc's security of supply.

"The EU Commission is right to be cautious ... What will we do if LNG tankers are redirected to Asia?" said Claude Turmes, Luxembourg's energy minister, in response to the idea.

Another worry is that setting a gas price cap would force the EU to manually allocate gas supplies if energy demand in several countries spiked at the same time.

"How would that work? We’d need someone in the Berlaymont basement switching the gas off and on with a joystick to decide who gets the gas," said one EU diplomat.

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