The European Commission is presenting new proposals on Tuesday to mitigate soaring energy prices, taking up measures that already have consensus among member states and acknowledging their divisions over a possible price cap. Here are the avenues explored by Brussels and those that are still being debated.
Reforming the gas market’s flagship index
The Commission wants to revise the Dutch market index TTF, which is used as a benchmark in the transactions of European gas operators. According to Brussels, its rise was fueled by speculation and investor concerns, “artificially” inflating prices. Brussels wants to create an alternative index within six months, more representative of the reality of supplies and effective for the next reserve filling season.
Until then, the Commission recommends “a temporary mechanism” to correct prices. According to a European source, this would be a “dynamic corridor”, a range framing the fluctuations of prices on the TTF market, which would help to temper the volatility of gas prices. A short circuit would limit any exceptional overheating.
A joint letter bringing together Italy, Poland, Greece, Belgium, the Netherlands and other states” not named, consulted by AFP, mentioned Thursday a “price corridor” for the wholesale market, while stressing that “views diverge on its feasibility, its economic effectiveness” and the risk of disruption of supply.
The same letter suggested that an alternative might be to amend the reference to the FTT in all existing commercial gas contracts.
Making joint gas purchases a reality
The European executive wants to strengthen measures to finally achieve joint purchases of gas at the EU level, so as to take advantage of the weight of the bloc to obtain better prices for the replenishment of stocks before the winter of 2023. It is also a question of avoiding that the States fuel the price explosion by competing, as they did this summer by filling their reserves at the same time.
The EU-27 had agreed at the end of March to a “platform” for joint procurement, but no deal has yet been struck, and many states have continued their own negotiations without consultation.
The Commission now wants to bring its talks with “reliable” producers (Norway, United States…) to a successful conclusion and should advocate greater involvement of the private sector by bringing together importing energy groups in a consortium or “cartel” of buyers.
Brussels will present additional tools to further reduce the demand for gas, as the States have so far made very variable efforts. A proposal will aim to strengthen solidarity with states that are vulnerable to the risk of shortages and have not concluded an agreement with their neighbors to guarantee their supplies.
Gas prices for electricity production: the measure is being revised?
France is strongly advocating a cap on the price of gas used to generate electricity in the EU. But according to the European source already mentioned, this measure would not be included in the Commission’s proposals. This system, which has already been applied in Spain and Portugal, consists of sweetening the gas bills of electricity operators (the difference with the market price being covered by a public subsidy), in order to bring down electricity prices in turn.
But the idea of extending this system to the whole of the EU has aroused the reluctance of countries reluctant to state intervention in the markets, including Germany and the Netherlands, who are worried about the uncertainty of its financing and the risk of compromising efforts to reduce demand in the face of tight supply. In early September, the Commission estimated that such an EU-wide “Iberian mechanism” could lead to an increased demand for gas of 45 billion cubic meters per year, from operators incentivized to produce more electricity, equivalent to about 10% of European gas consumption in 2021.
While Spain and Portugal have few connections to the European grid, the system may not work as effectively in other countries, with the risk, for example, of Belgium subsidizing electricity exported to the United Kingdom, worries one European official. However, the heads of state and government could agree on Thursday and Friday to study the measure anyway, while ensuring that the cap set “does not lead to an overall increase in gas consumption,” according to a draft of the summit’s conclusions consulted by AFP.
Similarly, Brussels will not propose any price cap on European gas imports: the idea was raised by Commission President Ursula von der Leyen in early November, but Germany is opposed to it for fear of disrupting supplies in a global market where liquefied natural gas ships can easily find other destinations.
