There is a draft price ceiling for gas in the EU. This is the effect of blackmail on the part of Poland and Italy

The European Commission on Tuesday submitted a draft crisis regulation to impose a price cap on wholesale gas in the EU by limiting the Dutch TTF stock market index, to which about 80% of gas is linked. gas trade in the EU. This index was also included as an element of price calculation in Polish contracts with Gazprom.

The threshold of EUR 275 per MWh proposed by the Commission is very high, because currently the price of pipeline gas in the EU is EUR 118, so the negotiations of the EU countries, calculated for the final in December, will probably focus heavily on a specific ceiling. Mateusz Morawiecki’s government, according to unofficial information, considers EUR 150-180 as the accepted threshold. To approve the final decision, a majority of 15 out of 27 EU countries in the EU Council is needed, which at the same time cover 65 percent of the EU. the population of the Union. This is a crisis procedure in which MEPs do not co-decide.

“It’s meant to be a last resort tool.” We are in a difficult situation because everyone is aware of the risks of such market intervention. But on the other hand, there is the expectation of a clear signal that Europeans will not buy gas at any price, explained today Kadri Simson, EU Commissioner for Energy. The price cap is to be activated automatically when the prices from the TTF index will stay above the set price for two weeks (EUR 275 in the current draft), and at the same time will be EUR 58 higher than the world prices of liquefied LNG gas for ten days. In this case, contracts with prices above the EU threshold would be illegal. So far, very similar conditions occurred only in August, when the price jumped to over 300 euros (but not for two weeks). However, today’s draft price cap (“market correction mechanism”) is mainly tailored for next year’s purchases as EU countries try to fill their gas storage facilities for the winter of 2023/24, which promises to be a much tougher challenge than this winter.

The European Commission has a monopoly on legislative initiative in the EU, and Brussels has been the scene of rare clashes in recent months between the majority of EU countries demanding a draft price cap and a recalcitrant European Commission that has refused to submit it. The then Italian Prime Minister, Mario Draghi, was the first to call for a price cap in the spring, pointing to Norway’s colossal gas income from exports to the EU. Since September, Italy, Poland, Belgium and Greece initiated joint appeals to the Commission, and finally 15 EU countries (including France and Spain) signed the proposal for the project, i.e. a majority sufficient to approve the project by the EU Council.

Reluctant Germany

At the October EU summit, Chancellor Olaf Scholz unblocked the EU’s work on the ceiling, which did not mean Germany’s consent to its introduction. And despite that, Over the last few days, Italy and Poland have been pushing the Commission to submit a draft by blackmailing that otherwise they will sabotage other gas and electricity crisis decisions in the EU. A very influential minority against the price ceiling is made up, apart from Germany, mainly by the Dutch, Austrians and Danes. On their side, there are many experts and officials of the European Commission who warn that the gas price cap is a risk of market disturbances and a threat to the security of supplies, should discouraged exporters redirect to other markets, and the Russians retaliate completely stop the already greatly reduced supplies of their gas.

– The EU Council and the Commission want to ban gas trade above a certain price, which will not solve the energy crisis. On the contrary, it will give us less reason to save gas. To really tackle high prices, we need binding gas savings targets.

As long as we buy gas from dictators, we will be exposed to blackmail from unreliable and undemocratic suppliers. It is obvious that we will solve the energy price crisis only by expanding renewable energy sources and increasing energy efficiency – commented today MEP Michael Bloss, who is leading this topic in the green faction.

However, the former Italian Prime Minister Draghi, previously the head of the European Central Bank, publicly argued that the EU is a market so large that it is able to create an effective “gas importers cartel” without losing gas supplies. Increasing energy efficiency, renewable energy sources or nuclear capacity that France or, in the future, Poland are betting on are long-term solutions, and the price cap – as its supporters argue – is needed now to save the European economy from collapsing under the weight of energy costs. at the same time, in the case of pipeline gas, significantly higher than global gas prices, which undermines the competitiveness of European industry.

Suspicion of the North

The political background for the disputes over the gas price cap are suspicions or even accusations against the opposing countries (they are a key part of the rich EU North) that since they have large budgetary capacity, some of their critics argue that they hope to manage the prices and help for businesses and families. And they will even be able to buy scarce gas, which would normally go to other EU countries. This was the premise of the heated dispute in the EU over the German gas price brake (a program worth EUR 200 billion), which many other EU countries would not be able to afford.

Among the critics of Berlin on this issue stood, among others, Poland, Italy, Spain, and also France, although Paris expressed it with much restraint from Prime Minister Morawiecki accusing Germany of “destroying the common market” by means of a subsidy race. However, experts from the Bruegel center in Brussels argue that the EU should prevent ” “gas subsidy race” not by means of a wholesale price cap, but by means of an EU common fund supporting anti-crisis measures in various EU countries.

Wholesale gas prices in the EU ranged from €5 to €35 in the previous decade, but rose well above €200 last summer, reaching an all-time high of almost €314 on 26 August.