EU unveils plan to control soaring gas prices

Countries will purchase gas collectively in bid to exert market power

(Getty)

EU leaders have unveiled a plan to intervene in Europe’s gas market in an attempt to bring down soaring prices. Presidents and prime ministers hashed out a deal late into the evening on Friday at a tumultuous summit in Brussels.

Leaders discussed the war in Ukraine on Thursday in the company of US president Joe Biden but on Friday turned their attention to addressing the continent’s unfolding cost of living crisis.

The top-level meeting dragged on hours longer than originally planned after leaders split into two camp advocating different ways forward.

Despite a pledge by Mr Biden on Friday morning to send more liquid natural gas to Europe to replace Russian supplies, some leaders want the EU to take a more active role in controlling prices.

Energy costs have gone through the roof since the Russian invasion of Ukraine, further buoying a market already inflated by demand restarting after Covid lockdowns.

Spain, Italy and Belgium argued that the European Commission should look at possible market interventions like price caps. But more free-market inclined governments like the Netherlands and Germany opposed such a move.

After a gruelling meeting described by diplomats as “difficult”, in the end a compromise was reached that included a reference to price caps and called on the Commission to look at ways to reduce prices.

But the main plank of the plans will see EU countries cooperate on the joint purchase of gas on a voluntary basis, in a bid to bring down prices. The plan hopes to use the EU’s collective buying power to get a better deal from producers.

“The root cause of high electricity prices is, in big part, high and volatile gas prices,” European Commission president Ursula von der Leyen said following the meeting.

“So we will join forces, pool our demand and use our collective bargaining power when purchasing gas. In addition, we must complete pipeline infrastructure and ramp up our storage. This will be our insurance policy against supply disruption. It’s also time to look at the design of our energy market.”

She said Spain and Portugal would also be given “special treatment” to introduce their own measures, which their governments would announce at home in the coming weeks.

Ms von der Leyen justified this different approach on the basis that the countries produced much electricity from renewable energy. The two countries were among the strongest advocates for fully fledged price caps.

Greek prime minister Kyriakos Mitsotakis, who also favoured a more interventionist approach, told a press conference following the EU summit: “We managed to include in the conclusions an explicit reference to gas price caps, among other options, which we call on the Commission to consider in order to put downward pressure on prices.”

He downplayed the length of the discussion, which he described as featuring “minor tensions”, and added: “We will intervene together as the European Union and break the game of the speculators, we will not pay for Russia’s war.”

Explaining the measures, French president Emmanuel Macron told reporters: “We’ve seen some countries going towards other countries to negotiate their own contracts that, and I told colleagues, it’s not the best way as we are pushing prices up.

”As we need to go towards a European diversification, it’s much more pertinent that the discussions for new contracts, like Norway, Qatar or the United States, can negotiate en masse and volume. It’s much better for us.”

The formal conclusions of the summit agreed by leaders say that “as a matter of urgency” the European Commission should explore further policies including “direct support to consumers through vouchers, tax rebates, state aid, taxation, price caps, and regulatory measures such as contracts for differences”.

The 27 states say they want Brussels to come back to them and “submit proposals that effectively address the problem of excessive electricity prices while preserving the integrity of the single market, maintaining incentives for the green transition, preserving the security of supply and avoiding disproportionate budgetary costs”.

Under a deal announced on Friday morning before the horse-trading over price caps, Joe Biden promised the US would deliver at least 15 billion cubic metres (bcm) more liquid natural gas to Europe than under previous plans.

The accord was struck by the US president and EU leaders at the meeting, which the Democratic politician attended after a Nato summit in the same city. The arrangement also sees the US commit to increase gas supplies in 2023.

“We aim to reduce this dependency on Russian fossil fuels and get rid of it. This can only be achieved through ... additional gas supplies, including LNG deliveries,” Ms von der Leyen said at a joint press conference with Mr Biden in the Belgian capital.

“We as Europeans want to diversify away from Russia towards suppliers that we trust, that are our friends, that are reliable. Therefore, the US commitment to provide the European Union with an additional at least 15 billion cubic metres of LNG this year is a big step in this direction because this will replace the LNG supply we currently receive from Russia.”

The US president told the same group of journalists: “We’re coming together to reduce Europe’s dependence on Russia’s energy. We should not subsidise Putin’s brutal attack on Ukraine.”

Gas prices have surged to record levels in the wake of Russia’s invasion of Ukraine, and some countries like Germany and Italy are heavily reliant on Russian supply.

Germany’s government has already pulled the plug on the planned gas pipeline called Nordstream 2, which critics said would increase reliance on supply controlled by Vladimir Putin’s regime.

But Russia currently supplies 40 per cent of the EU’s gas needs and 25 per cent of its oil, albeit with significant differences between countries. Boris Johnson conceded on Thursday at a Nato summit that it was easier for some countries to quit Russian hydrocarbons than others.

Despite imposing sanctions on Russia, the 27 countries are not yet ready to cut the cord yet when it comes to hydrocarbons, due to their heavy reliance on Russian gas.

Alexander De Croo, the Belgian prime minister, told reporters on the doorstep of the summit: “Measures on energy right now would have a huge impact on our economies. The basic rule is that sanctions must have a much greater impact on the Russian side than on the European side. We don’t wage war on ourselves.”

Meanwhile, Dutch leader Mark Rutte said: “Everybody wants it but it’s nothing that you can do in the short term.”