Europeans want to cap gas prices…without knowing how to do it

Faced with rising gas and electricity prices in recent days, the Czech Presidency of the European Union convened an extraordinary Council of Ministers of Energy on Friday 9 September. At the end of this meeting, the ministers seem to agree on one point: the need to cap the natural gas price as soon as possible. On the other hand, the scope of this cap and the way to achieve it are not clear.

As a reminder, the movement of the price of gas also makes it possible to move the price of electricity because the latter, during peaks of demand, will automatically adjust the cost of operating gas power stations , which is very high now.

On Wednesday, Ursula von der Leyen, the head of the European executive presented five measures, which are still being studied, to prevent stratospheric energy prices. Among them, the desire to cap the price of Russian gas imported through the pipeline.

Set the price of gas, regardless of its source

But the ministers [européens de l’Energie, ndlr] is now being asked to analyze a cap for the rest of the gas imported into the European Union »explained by Kadri Simson, the European Commissioner for Energy.

This is especially the case in Croatia which, during the public session, said it was in favor the gas price cap, regardless of the source of the gas ». A position that Poland also clearly defends.

There is a reflection that is wider than the capping of Russian gas alone, which is delivered by gas pipelines. In general, the countries called to think about capping the price of gas. The question arises in different technical terms if it is related to imported gas [par voies maritimes, ndlr] or gas that arrives through gas pipelines. All these topics are on the table today »commented, on the side of this council, the French Minister of Energy Agnès Pannier-Runacher.

A complicated matter »

The gas price cap is considered in market terms and it is a complex matter »recognized by Kadri Simson. You have to think about the impact it can have. We need more time to more clearly define where this cap is and how to implement it. », he added.

In particular, the European Commissioner for Energy expressed his doubts about the price cap on imports of liquefied natural gas (LNG), which, according to him, could “Creates a security of supply risk » in the European Union, because LNG is a global market », where the competition is intensifying. So it is difficult to be in a position of strength in negotiations.

What is interesting is that there is a common will to continue this topic and it is a very strong message sent to the markets to prevent financial transactions in the gas market that similar to a game and not a physical reality of energy flows. » pointed out, for his part, Agnès Pannier-Runacher.

Tapping the price of gas-fired electricity in the EU

From these comments, one certainty emerges: today, no concrete and unique solution can be seen clearly. Meanwhile, France continues to ask for an extension of the exceptional regime currently enjoyed by Spain and Portugal.

Concretely, Madrid and Lisbon set the price of fossil gas at 40 euros per MWh to significantly reduce the cost of operating gas-fired power stations, where other operators (renewable, nuclear or coal) will adjust. Therefore, if the gas imported to Spain costs 300 euros per MWh, the State will pay the difference between 40 and 300 euros. It’s like subsidizing natural gas.

This move seems to be effective in lowering the price of electricity. In fact, for many months, prices in the wholesale markets of the two Iberian countries are much lower than in the rest of the European Union – between 150 and 200 euros per MWh on average, when France is struggling to fall in less than 400.

A new emergency meeting at the end of September

The extension of this mechanism is the same “Supported by Sweden »confirmed by Agnès Pannier-Runacher, while Italy and Austria are also in favor of a decoupling the price of gas from the price of electricity ».

In addition to creating a ceiling, the group purchase of gas on a European scale, in the same model as the group purchase of vaccines, may be possible to negotiate prices down. This option has been widely pushed by European energy ministers. However, at present, there is no joint purchase of gas.

We are testing preliminary options, an industry advisory group will soon be established. The necessary legal elements still need to be put in place »said Kadri Simson.

At the end of the exchanges, the ministers said they were ready to meet again at the end of September to take extraordinary measures intended to counter the surge in energy prices.