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    EU member states spar over proposed gas price cap


There is general support for the measure, but member states disagree whether it should apply only to Russian supplies or all EU gas imports.

by: NGW

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Natural Gas & LNG News, Europe, Top Stories, Political, News By Country, EU

EU member states spar over proposed gas price cap

The European Commission (EC)'s proposal to cap the price of Russian gas supplies has received mixed responses from EU member states, with some warning about the risk of retaliation from Moscow, and others calling for the cap to be introduced to gas imports from other countries as well.

EU energy ministers convened an emergency meeting on September 9 to discuss the price cap and a series of other proposals made by the EC to cushion the blow of soaring wholesale energy costs on consumers, and limit how much revenue Russia can earn to finance its war in Ukraine. Czech transport and industry minister Jozef Sikela said ministers had agreed on "a common direction for temporary emergency measures," and that there was "a prevailing view" that a price cap would be one of those measures, according to The Financial Times.

However, the minister cautioned that there was still work to be done in thrashing out details of the plan. Likewise EU energy commissioner Kadri Simson, also present at the talks, said "nothing is decided."

The disagreement is primarily about whether the cap should only be imposed on Russian gas supplies, as per the EC's proposal, or whether it should be applied to all gas imports into the EU. While some including the Baltic states support the proposal as it currently stands, a dozen countries including France and Poland want it extended to all supply, including that from key suppliers Norway, Qatar and the US, according to The Guardian. Meanwhile Hungary and other member states heavily reliant on Russian gas have expressed concern that Moscow will respond simply by cutting off supply completely.

Experts fear the price cap, regardless of the extent that it is applied, will exacerbate the European supply crunch.

"If we would apply the price cap to LNG, that LNG may go to Asia," Anne-Sophie Corbeau, global research scholar at the Center on Global Energy Policy at Columbia University's School of International and Public Affairs, told NGW. "If Europe targets only Russia, they will likely cut what little supply is left."

Norway, which is now the EU's biggest gas supplier following Russian cuts, has rejected the idea of a price cap applied to its gas. But the country would not be able to find an alternative market for its supplies, besides sending some extra gas to the UK and diverting some shipments from the Hammerfest LNG terminal.

The case is different with LNG suppliers such as the US and Qatar, however. LNG supplies to Europe have soared this year as the market currently offers higher prices than in Asia, in contrast to the historic norm. But a price cap would give them more incentive to send the cargoes to Asian markets such as China, India, Japan, South Korea and Taiwan.

Thierry Bros, energy expert and professor at Po Paris, agrees that Russia would retaliate by cutting off flow. Instead, the EU should focus on imposing an embargo on Russian gas imports from the end of winter 2023.

"Capping Russian gas prices will not work and still gives leverage to the Kremlin to decide what to do with flows," he said.

Russian president Vladimir Putin has threatened to do just that, as well as curtail supplies of oil, coal and other fuels to Europe if the cap is introduced.

"Putting an external cap on Russian gas prices is highly unlikely to have the desired result. More likely is a further reduction in Russian exports and even higher gas prices and larger shortages on European markets," Ronald Smith, oil and gas analyst at BCS Global Markets, added. "For this reason, we do not expect Europe to even try to implement such a measure."

He adds that extending the cap to all gas imports "is a complete fantasy, as any attempt to do that would quickly redirect LNG back to Asia, making the existing gas shortage substantially more acute."

Russian gas supply to Europe has already fallen to a record low as a result of cuts imposed by Moscow. Gazprom's piped exports to the continent dropped to 3.4bn m3 in August, down 7% month/month, and a further decline in September is expected as a result of the shutdown of the Nord Stream 1 pipeline, which was previously flowing at only a fifth of its capacity.

Despite clashing over the price cap, EU energy ministers did back a number of other proposals from the European Commission, including a windfall tax on generators of non-gas-derived power and oil and gas producers, a bloc-wide cut in power consumption and the provision of "emergency liquidity instruments" to help energy firms cope with high purchase costs for gas and power.

"Today, we managed to agree on a common direction for temporary emergency measures and give a clear task to the commission to come forward with a robust and tangible proposal in a matter of days," Sikela said in a statement.

European gas prices have been steadily declining since the spike in late August, as LNG exports remain strong and storage facilities continue to be filled, as well as some demand destruction and news of the gas price proposal making some progress. News over the September 10-11 weekend that Ukrainian forces had gained significant ground in a surprise counteroffensive in the country's northeast has also raised hopes of an end to the ground conflict.

The October contract at the Dutch TTF hub is down 7.2% as of 13:15 GMT on September 12 from the previous session, trading at 192.1/MWh ($2,073/'000 m3). It had peaked at €347/MWh on August 26.