Why did the Europeans fail to agree on a price ceiling for gas?

Why did the Europeans fail to agree on a price ceiling for gas?
Why did the Europeans fail to agree on a price ceiling for gas?

The energy ministers of the European Union failed during their meeting today, Thursday, November 24, in Brussels to reach an agreement on the European Commission’s proposal to impose a price ceiling on natural gas, to confront the crisis of high energy prices in Europe.

Perhaps the European Energy Council will hold another meeting in mid-December to discuss the issue and agree on a solution before the Christmas period and the cold winter in the European continent.

The European Commission announced its proposal a few days ago to impose a price ceiling for natural gas when its price exceeds 275 euros ($286) per megawatt hour, for a period of two weeks in the European market, on the main gas trading platform in Europe “TTF”. However, the proposal met strong opposition from the EU countries, between those who agreed to the principle of the price ceiling and those who rejected it.

The proposal for a price ceiling for natural gas was part of a package of measures to confront the problem of the energy crisis in European countries due to the war in Ukraine and the sanctions against Russia. A group of EU countries such as Spain, Belgium, Italy, Poland and Greece announced that they would not agree to the energy crisis package unless the issue of the gas price ceiling was resolved.

Countries that agree to impose a price ceiling objected to what the Commission put forward as being too high, as if it had been designed so that it would not be implemented. As for countries that object to the principle of the price ceiling on its basis, they considered that it threatens the financial stability of the European Union.

Objections and warnings

The irony is that the countries that were pushing the European Commission to impose a price ceiling are the ones that thwarted the agreement of the European Energy Council meeting, Thursday, on the energy crisis package, led by Spain and Greece, while countries such as Germany, the Netherlands and Denmark oppose the principle of imposing a price ceiling for gas and see it as interference. In the free market may lead to greater damage.

When the Commission announced the ceiling, opposition widened as it was too high and would not solve the problem of the burden of energy consumption on households and companies. The Financial Times quoted Simon Tagliaptera of the Bruegel think tank in Brussels as saying about the Commission’s proposal, “This is a joke and this is a proposal that will not It benefits anyone even in the event of a situation similar to what happened in August, and this is not a ceiling, and the truth is that it harms confidence in the Commission’s ability to deal with the energy crisis.

Natural gas prices rose in Europe during the summer to an unprecedented level at 300 euros ($312) per megawatt hour, equivalent to the price of $500 per barrel of oil, for example, after Russia stopped gas supplies to Europe through the Nord Stream 1 pipeline.

According to the Commission’s proposal, the proposed price ceiling would not have been applied in that case, so the countries that want to set a price ceiling for gas, which are about 15 countries, object to this proposed ceiling, especially since natural gas prices, although they are still high in Europe, are now at a level 116 euros ($120) per megawatt hour, less than half of the suggested price ceiling.

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However, the European Commission fears that prices will rise again strongly with the need for European countries to refill stocks that will be depleted this winter, and also because Europe is now highly dependent on liquefied natural gas imports from America and others, which means a rise in wholesale prices in the European market, because the price of LNG is much higher than the gas imported through pipelines.

The objection to the price ceiling was not only on the part of European countries, but the company operating the gas futures exchange market “TTF” in the Netherlands warned the European Commission of losses amounting to 33 billion dollars in the event of imposing a price ceiling for natural gas.

The Dutch trading platform believes that these losses will cause turmoil in the gas market in Europe, especially during next spring, with increased demand to fill stocks.

The continuation of the crisis

Despite what the media reported about another emergency meeting of the European Energy Council next month, most analysts and commentators believe that the energy crisis in Europe will continue at least until the end of next year, and unless European countries take decisive measures to confront the crisis, they may agree more on a chapter. Next winter 2023.

Before heading to Brussels to participate in the meeting of the European Energy Council, French Energy Minister Agnes Banner Ronacher demanded structural reforms for the energy sector in Europe, describing the European Commission’s proposal to impose a price ceiling on gas as “not enough.”

She added that a price cap for natural gas “is not a structural reform, nor is it a response to the high gas prices that the European industrial sector faces and threatens the economies of our country, and it is not a sufficient measure.”

Despite the failure of the European Energy Council to agree on an energy crisis package during the Brussels meeting, member states agreed on the least controversial items other than the gas price cap.

Some items of the Commission’s plan witnessed an informal agreement between the meeting energy ministers, but the whole package is postponed until the emergency meeting next month.

Among the items that witnessed a preliminary agreement were the legislation for approvals of renewable energy projects and a package of measures for solidarity in the energy crisis, such as the joint purchase of natural gas and the exchange of its supplies between the European Union countries, in addition to a standard standard for liquefied natural gas prices.

The article is in Arabic

Tags: Europeans fail agree price ceiling gas

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