EU energy ministers clash over Russian gas price cap proposal

EU energy ministers clash over Russian gas price cap proposal
Moscow has said it will not reopen the Nordstream 1 pipeline until sanctions are dropped, while state-owned Gazprom has chosen not to divert supplies to other supply routes such as Ukraine. / bne IntelliNews
By bne IntelliNews September 12, 2022

EU member states have clashed over the European Commission’s proposal to place a price cap on Russian gas supplies, casting doubt on whether the measure will be implemented.

The bloc’s 27 energy ministers met on September 9 to discuss a package of EC proposals aimed at depriving Moscow of revenues to fund its war in Ukraine, and ease soaring energy costs for EU households and businesses. The ministers backed a number of the proposals, including a windfall tax on generators of non-gas power and oil and gas, a bloc-wide reduction in power consumption and the provision of “emergency liquidity instruments” to support energy firms coping with soaring energy purchase costs, according to Politico.

“Today, we managed to agree on a common direction for temporary emergency measures and give a clear task to the commission to come forward with a robust and tangible proposal in a matter of days,” Czech Transport and Industry Minister Jozef Sikela said in a statement after the meeting.

However, ministers sparred over the issue of the gas price cap, primarily over whether it should apply only to Russian gas supplies or all EU imports. According to The Guardian, a dozen countries including France and Poland called for the cap to be imposed on all gas supply including LNG. However, EU Energy Commissioner Kadri Simson warned that such an approach “could present a security of supply challenge,” adding that “nothing is decided” on the proposal.

Sikela was more upbeat about the outcome of discussions, noting that there was “a prevailing view of the countries that we need [a gas price cap] as an emergency measure," according to The Financial Times. But he warned that more work was necessary to assess the possible impact because “it is from the market point of view the most difficult case”.

The EU is competing for gas supplies from other countries such as Qatar, Norway and the US with Asian markets, Simson noted. The US in particular sells significant shares of its gas supply on the spot market, meaning it has no contractual obligation not to divert these supplies to whichever buyer is willing to pay the highest price. The same is true of Norway, but the overwhelming majority of its supplies are sent to Europe via pipeline and cannot be redirected to other markets save for the UK, which is not party to the gas price cap talks.

Some countries heavily reliant on Russian supply including Hungary, Slovakia and Austria have warned that Russia could respond to a price cap by simply cutting off gas supply. Russian President Vladimir Putin has indicated that Moscow would do just that, and also cease deliveries of oil, coal and heating oil to boot. 

Only the Baltic States, which have been calling for harsher sanctions against Russia in recent months, fully backed the proposal.

Russian gas supply to Europe slumped to a new low of 3.4bn cubic metres in August, down 7% month on month, and a further decline is anticipated in September in light of Nord Stream 1’s indefinite closure. Gazprom reported last week that its supply to the EU has fallen by nearly half since the start of the year.

These reductions in supply have largely been political in nature. Gazprom has cut off deliveries to several EU member states for refusing to comply with a Kremlin decree requiring them to pay for gas in rubles.  And while Western sanctions have complicated the repair and maintenance of equipment at the Nord Stream 1 pipeline’s compressor station, reducing its flow capacity, Moscow has said it will not reopen it until sanctions are dropped, while state-owned Gazprom has chosen not to divert supplies to other supply routes such as Ukraine. Having imposed its own sanctions on the operator of the Yamal-Europe pipeline that runs through Belarus and Poland to Germany, Russia has effectively rendered that route unusable.

However, despite these cuts, the EU still managed to reach its target of filling gas storage facilities to 80% of capacity in late August – over two months ahead of schedule. And these storage facilities continue to be filled further, reaching close to 84% of capacity as of September 10, according to data published by Gas Infrastructure Europe. Whether this will be enough to see the EU through winter in the event of a complete shutdown in Russian supply will depend on temperatures and the effectiveness of the bloc’s efforts to curb consumption.


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