Energy, EU leader in comparison on gas price ceiling

A minority of countries, including Germany, continue to oppose any measure that limits prices. Last European Council as premier for Draghi

The EU heads of state and government are preparing to meet in Brussels for a European Council focused on the energy crisis, which is putting a strain on businesses and families of the Old Continent, struggling with bills that continue to riseonly partially withheld by governments, which spend billions of euros to buffer the effects of expensive gas.

Hungarian Prime Minister Viktor Orbàn, via social media, heralds a long discussion, especially on the joint purchase of natural gas, one of the few points on which the capitals seem to be more aligned. The most controversial point remains the ceiling, albeit dynamic and temporary, on the price of gas; no less difficult is the crux of how to finance a European response to the energy crisis, avoiding the ‘each for himself’ that prevails today.

A minority of countries, which however includes Germany, continue to oppose any measure that limits prices, for fear that it could lead to a shortage of raw materials. In addition to Berlin, the Dutch are skeptical, as are the Austrians, the Hungarians and even the Irish, who do not want to jeopardize gas imports from Norway. Sixteen countries, including Italy, are pushing for a more assertive ‘wording’ of conclusions on the gas price ceiling: the current wording is that the European Council, whose conclusions guide EU policy, has agreed to ” examine a temporary and dynamic ceiling on natural gas prices, to limit prices until “the new benchmark is in force, which should be” complementary “to the Ttf, the current benchmark in Europe for the price of methane.

The first draft, instead of “examine”, reported “explore”. The countries that push for the roof are working to make it “propose”, that is, a strong mandate to the Commission to move. The leaders already discussed the gas price ceiling at the Prague summit, but then “there was no Commission proposal”, unlike today, notes a senior EU official. At least, now “there is a basis on which to negotiate”. In any case, everyone has noted that the mere fact that the Commission has aired the introduction of a mechanism to calm prices has caused the prices of methane to collapse: they are still high, but still two-thirds lower than the peaks of the ‘summer.

Ttf futures at the ICE rose to 118 euros per megawatt hour, for delivery in November: the peak on 26 August was just under 350 euros. The prices for deliveries in December and January are higher, also because the tanks in the EU are full, standing at 142 and 146 euros respectively. In fact, as soon as the EU gives messages of unity, the markets calm down, exactly as happened with Next Generation EU., when speculation on government bonds had withdrawn in good order. Several countries are pushing for messages of this type to continue to be given. Especially since a dynamic ceiling could not even be touched: “We have seen a drop in prices, so in the end a ceiling may not even be necessary”, observes an EU source.

That is to say that the very existence of the cap, the lower limit of which should in any case be such as to ensure fair remuneration for suppliers to avoid running out of gas, would probably be enough to calm the market. Exactly as happened with Mario Draghi’s ‘whatever it takes’, which discouraged speculation because the markets believed in the words of the president of the ECB. The Omt, the so-called ‘bazooka’ of Draghi, have never been used: it was enough that they were part of the arsenal. For Draghi, who for several months has been fighting in Brussels to introduce a ceiling on the price of gas and for a joint response to the crisis, financed jointly and severally, today’s and tomorrow will in all likelihood be the last European Council of his mandate as premier. As usual, there will be a greeting from colleagues, probably “sober”, but “surprises” are not excluded, according to EU sources.

A another controversial point of the energy package is the ceiling on the price of gas used to produce electricity, that is, the extension of the so-called ‘Iberian exception’ to the other EU countries. There are several concerns, both as regards the impact on public finances, and as regards the electricity exported to the United Kingdom and Switzerland. In practice, since the difference between the price ceiling and the market price is paid by the State, there is a real risk that the subsidized energy will end up being exported to the two non-EU countries. The point is who pays the difference in this case.

Linked to the perplexities relating to the Iberian exception is the problem of the European financing of the response to the energy crisis. Italy and France are pushing for a re-edition of the Sure model, the EU loan plan launched at the beginning of the Covid-19 pandemic to help states defend employment. Others hold back: here too the main stumbling block is Germany.

In particular, the difficulties of the Liberal Democrats of the FDP in the red-green coalition weigh heavily: they were left out, a few days ago, by the Parliament of Lower Saxony, which is why today they are incentivized to oppose any measure that sounds like ‘European debt’, anathema for the German liberal electoral.

This was demonstrated when Olaf Scholz’s intention to open up to an EU plan based on the Sure model was leaked in the aftermath of the elections in the Land. Rumors that were denied in the evening. The difficulties in the governing coalition in Germany, such and many that Scholz had to impose the extension of the operation of the remaining three nuclear power plants, to put an end to the quarrels between the Greens and the Liberals, are destined to weigh heavily on the path towards a European solution to the crisis. energy. Each country, even Germany, has its own internal policy: the German one weighs more than the others, due to the size of the country.

A another controversial point is the reform of the electricity market, which the Commission is working on. The goal is to decouple the price of electricity from that of gas: the Commission’s proposal is expected by the beginning of 2023. Some countries remain doubtful about the advisability of modifying a market architecture which, until the invasion of Ukraine has proven to work well. The discussion among energy leaders, which should take up most of the first day (and evening), may not be short.

For the rest, the heads of state and government are expected at the Europa Building from 2 pm The summit should start around 3 pm with a debate on Ukraine, with a remote intervention by President Volodymyr Zelensky. Then they will start discussing energy and the economic situation, two closely related topics. There will be a transition to critical infrastructures, after the sabotage suffered by the Nord Stream 1 and 2 gas pipelines.

The the rest of the Council will be devoted mainly to foreign policy. In particular, the leaders will discuss China, after the reconfirmation for the third term of the CCP secretary and president Xi Jinping, and the way in which the EU should deal with Beijing. The EU-ASEAN summit and COP27 in Sharm-el-Sheikh are also on the agenda. The leaders will also talk about Iran: new sanctions have already been adopted for the violent repression of the protests triggered by the killing of 23-year-old Mahsa Amini. Others are in preparation, and may come very soon, due to Tehran’s role in supplying drones to Russia, which uses them to target cities in Ukraine.