Spanish Energy Minister Teresa Ribera lashed at Brussels last week. Describing the European Union’s (EU) price cap plan for natural gas as “ridiculous” and “damaging”, Ribera also urged Brussels bureaucrats to take the issue seriously.
Polish Climate Minister Anna Moskwa has also joined the long list of people who are unsatisfied with the matter. “[The gas cap proposal] is a joke,” he said, saying the EU’s offer for a price cap does not satisfy a single country.
EU officials, reluctant to give their names to CNBC, said the price cap negotiations had been challenging. Another official told that the negotiations were heated and at some point things even got “really ugly”.
No one is satisfied
The European Commission’s proposed natural gas price cap is 275 euros per hour and the price of natural gas will have to remain above 275 euros for two weeks for the law to be implemented. According to European Energy Commissioner Kadri Simson, the price cap is not a silver bullet that will lower energy prices, but a powerful tool that can be used when needed.
While EU energy ministers had not yet met and the Commission’s proposal had just emerged, a division had begun, involving France and Italy on one side, and Germany and the Netherlands on the other. The group, led by France and Italy, argued that it was necessary to set a price cap on wholesale gas prices in order to protect consumers and industry. The group led by Germany and the Netherlands thought that this would jeopardize supplies. This group includes Austria, Denmark and Hungary.
Similar objections came from members of the European Commission. Setting a price cap for natural gas would cause supplies to shift outside of Europe, causing fuel shortages and making it difficult to supply gas to countries in need within the union.
The electricity commodity exchange Europex also issued a statement, saying they were deeply concerned about the “market adjustment mechanism”, with the risk that the price cap would drive buyers to buy and sell directly. What is meant by direct trading is the purchases made through brokers and companies that are not listed on the stock exchange.
Objection by Poland, Spain and Greece
Countries that support the price cap think the bill is unrealistic. For example, the Spanish’s own Iberian price cap mechanism, which will expire in 2023, has set 40 euros as the limit. Therefore, it makes little sense for Spain to adjust to the price cap of 275 euros.
Poland’s problem seems to be different. Together with the Baltic countries, Warsaw argues that the price cap for natural gas and oil is too high, that it will never be put into practice and therefore will not harm Russia. For example, a price cap in 65-70 dollars range is being considered for Russian oil, but Poland’s proposal is 30 dollars.
Greek Environment and Energy Minister Costas Skrekas says a price cap of 275 euros is not actually a price cap though. The energy crisis for businesses and households is “shocking”, Skrekas said, claiming that Athens’ price cap proposal is 150-200 euros.
The meeting failed to reach any consensus
The emergency meeting of EU energy ministers last week also resulted with uncertainty and disagreement. “The debate was very heated and you all know that there are very different views,” Czech Industry Minister Jozef Síkela, who chaired the meeting, told the press.
Dutch Energy Minister Rob Jetten, who was skeptical about the price cap, said there were still huge. On Friday, while the price of gas in Europe was 123 euros per megawatt hour, Jetten said they want to prepare for the following year.
The Associated Press estimates that there are 15 countries that want a lower price cap. Germany and the Netherlands worry that gas suppliers who find better prices elsewhere in the world will bypass Europe.
With no results from last week’s meeting, a new meeting was scheduled for December 13th. On 5 December, new EU oil sanctions against Russia will begin.
Russia’s reaction
The first statement from the opposite front came from Mikhail Ulyanov, Russia’s permanent representative in Vienna-based international organisations. “Totalitarianism is being expanded into economics by the West,” Ulyanov said, arguing that the West is the biggest enemy of the market economy. Ulyanov also reminded that Moscow will not sell oil and natural gas under the price cap conditions.
In a phone conversation with the Iraqi Prime Minister, Russian President Vladimir Putin warned that the price cap that is to be implemented on Russian oil and natural gas would create “serious consequences” in the global energy market.
Estimates show that oil production in Russia ranges from 20 to 50 dollars per barrel. According to Bloomberg, that’s an average of 52 dollars. If the EU implements the price cap, Russia has the opportunity to cut production and turn the world’s energy markets upside down.
Attitude of US is different from EU
Other EU member states, including those with large maritime industries such as Greece, Malta and Cyprus, want to keep the price high in order to maintain the flow of Russian oil trade, the Financial Times wrote. The interesting thing is that the US probably supports this position. Washington is concerned that EU sanctions and the price cap will drive oil prices up.
The Biden government hopes that if a price cap is set, countries such as China, India and Turkey will be able to negotiate lower-priced deals, taking advantage of the price cap.
