Measure against price pressure
EU countries are now buying gas together
03/25/2022, 11:08 p.m
In Brussels, the heads of government of the EU states have been debating measures to counter skyrocketing gas prices. They can agree to pool their purchasing power by covering their needs together on energy markets. But Spain and Portugal are calling for more in-depth methods.
In the fight against high energy prices, the EU countries have agreed on joint gas purchases. “Instead of outbidding each other and driving up prices, we will bundle our demand,” said Commission President Ursula von der Leyen after an EU summit in Brussels. On the other hand, there was no agreement on tougher market interventions such as price caps at EU level, which Spain and Portugal, among others, had called for.
However, both countries negotiated special national regulations for price caps for themselves. Von der Leyen said it was examining various options to cushion the impact of high energy prices on consumers and businesses. These include income support, tax cuts, price regulation and price caps. “All the options we have presented have advantages and disadvantages.” The most important thing, however, is to address the root cause of the high electricity prices. This is largely due to fluctuations in gas prices. “I welcome the fact that we will use our joint negotiating power.”
In the case of pipeline gas, the EU represents around 75 percent of the market. “We have enormous purchasing power,” said von der Leyen. Participation in joint purchases should be voluntary. Von der Leyen had already presented a deal with US President Joe Biden in the morning, according to which the EU should in future purchase large quantities of liquefied natural gas (LNG) from the USA in order to reduce dependence on energy supplies from Russia.
Scholz does not want any market intervention
Spain in particular had pushed for much more comprehensive measures. This also includes separating the electricity price from the gas price, because both are linked in the EU. Spain, Greece, Italy and Portugal are also in favor of a price cap. However, countries such as Germany and the Netherlands reject such market intervention. Scholz said: “Germany and many other countries are very skeptical when it comes to market intervention because there is a great risk that you will not have a good effect in terms of market supply and will not have a lasting effect in terms of prices.”
The discussion between the heads of state and government therefore went much longer than planned. The meeting was interrupted several times to work out new compromise formulas. In the end there was a typical summit compromise in which each side gets something. According to Spanish Prime Minister Pedro Sánchez, his country and Portugal can take temporary special measures to reduce electricity prices for consumers, industry and companies. His Portuguese colleague António Costa spoke of a maximum reference price for gas that should not be exceeded. These measures would be examined by the Commission so that the European electricity market would not be distorted, said Sánchez.
The two countries are severely affected by the high prices, for example because of their energy mix and few network connections to the rest of Europe. The joint final declaration stated that the EU states and the Commission should discuss with stakeholders in the energy sector whether and how, among other things, price caps or tax rebates could help to lower the gas price and combat its “contagion effect” on the electricity markets. Energy prices had risen sharply even before the Ukraine war. Since the Russian invasion, the EU has been trying to move away from energy imports from Russia. In the end, around 40 percent of the gas consumed in the EU came from Russia.
USA are criticized for fracking
By the end of the year, the amount should be reduced by two thirds if possible. Liquefied natural gas (LNG) from the USA should help. This year alone, the USA and international partners want to provide the EU with an additional 15 billion cubic meters of LNG, as announced by von der Leyen and Biden. In the long term, the amount is expected to increase to 50 billion cubic meters per year. According to the Commission, this could replace around a third of current gas imports from Russia. This year it should be a tenth.
Biden had attended the EU summit the day before to discuss how to proceed with the war in Ukraine. Von der Leyen said the US pledge of 15 billion cubic meters is a big step in reducing dependence on Russia. For the US, the deal brought about by Russia’s war against Ukraine is attractive. Washington has been trying to sell more LNG on the European market for years.
In the USA, gas is mostly produced using the controversial fracking method. A liquid is pressed into the ground under high pressure in order to make the rock more permeable and to be able to extract gas or oil. Critics warn of environmentally harmful emissions and a possible threat to groundwater. For example, the US state of California wants to ban fracking from 2024.