The 27 commission the European Commission with a plan to intervene in the gas market

• The wholesale market plan would set the maximum price at which gas imports would be paid
• It would be the first time in history that buyers set that price
• The alternative to reluctance would be to negotiate it downwards

Palace things go slowly. One more summit, this time an informal one in Prague, decided to take another kick forward, although the resistance is subsiding. Most European Union governments, including Spain, Italy and French, want the EU to approve a plan to intervene in the price of gas in wholesale markets by setting a maximum price at which gas imports would be paid. It would be the first time in history that buyers, and not sellers or the market, set that price. The alternative, given the German and Dutch reluctance, would be to negotiate it downwards.

“Russia fired an energy missile over the European continent,” European Council President Charles Michel said on behalf of the 27. For Michel, Friday’s meeting is “a stage” before the key meeting at the end of October. Belgium’s former liberal prime minister said the 27 “share a common ambition to drive down the prices of energy resources.” There is no absolute agreement on how to do it, but there is agreement on the urgency of not letting autumn burn out.

The president of the European Commission, Ursula Von der Leyen, promised “detailed proposals in the coming weeks”, as demanded by the 27. And he explained that there is “a broad consensus” among governments so that next spring joint gas purchases will already work. Von der Leyen announced that in the proposals there will be mechanisms to limit the price of imported gas and to decouple the price of gas from the formation of electricity prices.

After weeks of statements, formal proposals, leaks and a steady increase in political pressure, Germany gave in on Friday for the first time and the 27 tasked the European Commission with preparing a formal proposal for the next ordinary European summit, to be held in Brussels in two weeks. The plan on the table, in the absence of the Commission’s technicians getting their hands on it, is a proposal signed by Belgium, Greece, Italy and Poland. Belgian Prime Minister Alexander De Croo said he has the backing of 24 of the 27 member states.

They believe that European countries should not continue importing gas at market prices because they consider that only speculation and the malfunction of the TTF index (the benchmark) justify the historically high prices of recent months. The solution of these four countries, which has the approval of the majority and on which the Commission should work, is to set a maximum price at which Europe would pay for imported gas.

That price could fluctuate to always be a little above the price of gas in the Asian wholesale market. This would prevent, they believe, producers from diverting to Asia supplies that must go to Europe. The measure would not only apply to the dwindling imports of Russian gas, but would affect all countries that export gas to Europe, from the United States to Qatar through Norway, Algeria or Azerbaijan.

Would those countries accept it? Some, like Algeria, would have difficulty resisting because most of their exports go to Spain and Italy and have no alternative buyers in the short term. If it does not sell to Europe, it does not sell a large part of its production. The European Commission has been talking to Norway for weeks and seems ready to accept the plan, whose price would still be much higher than the prices prior to the energy crisis.

The US government needs to be convinced and that would be the greatest risk because all the gas that the United States exports to Europe arrives in the old continent in LNG carriers. If Algeria cannot divert its pipelines to Spain and Italy tomorrow, the United States could divert its LNG carriers to Japan, Australia or South Korea.

The plan, which may come out of the European Commission’s furnace changed or with tweaks added by governments, would include provisions to buy gas at market prices in the event of supply problems at the fixed price.

Teresa Ribera, third vice president and minister of Ecological Transition, a critical person in recent months with the reluctance of the European Commission to intervene in the energy market, said on Friday in an interview with Reuters that Europe is approaching a consensus “to intervene at the root of the problem, the effect that gas prices have on the formation of electricity prices.

Negotiated prices

The alternative to the unilaterally imposed gas price limit, if Germany does not jump on the boat, would be to negotiate it with “reliable suppliers” (in the words of Von der Leyen) but downwards to serve the same purpose of substantially reducing energy bills.

Source: Nius