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EU ministers call for urgent intervention in energy market

EU ministers call for urgent intervention in energy market

3 min. 09.09.2022
However, countries failed to agree on plan for a mandatory reduction in power demand at meeting on Friday
EU Energy Commissioner Kadri Simson speaks during a press conference following a meeting of the bloc's energy ministers on Friday
EU Energy Commissioner Kadri Simson speaks during a press conference following a meeting of the bloc's energy ministers on Friday
Photo credit: AFP

European Union energy ministers called on the bloc’s executive arm to devise urgent measures to provide liquidity to traders clobbered by massive margin calls, and to tame the price of gas, as the energy crisis spreads financial distress across the bloc.

While they all agreed on the need for urgent action, they stopped short of calling for a mandatory reduction in power demand - perhaps the most crucial step to ease the crisis. 

There’s still not much detail and the real fight will start next week when European Commission President Ursula von der Leyen sets out concrete measures for legislation.

Going into the meeting there were divisions on whether to try to impose a price cap on imported Russian gas. Moscow has said it won’t supply gas to countries that sign up to gas caps and some countries are worried about jeopardising the limited flows that are still coming to Europe.

The idea of a broader gas price cap - on all imports, not just Russia’s -  was discussed during the talks, while some wanted to focus on capping domestic prices instead. 

In the end, ministers agreed more work was needed before any measure on capping import prices could be introduced. With 27 members states’ views to take into account - all with different interests - that could take some time.

Suppliers split

Joint purchases could form part of any such part. Still, it’s not clear whether suppliers would agree to the curbs, particularly at a time when the bloc is trying to boost new supplies to replace the lost Russian volumes. 

One German official said the idea is losing popularity at least in some quarters amid a sense that it may worsen the supply crunch. Major suppliers include Norway, Qatar and the US, and the American LNG industry has already cautioned against any such step.

The ministers also called for proposals to tax fossil-fuel companies for excess profits in a “solidarity contribution” and to cap the revenues of power generators that don’t use gas. The idea is to redirect the funds to struggling consumers.

“Specific measures in this regard should also help limiting the impact of high gas prices on EU electricity markets and energy prices for customers,” according to a joint statement they drafted. The details are still to be hashed out - including what exactly is meant by a price cap. 

Ministers called for the removal of an automatic increase in the maximum clearing price for power auctions, a move they said would give confidence to the market. Depending on the level set, it could keep a lid on costs at very tight times this winter.

Separately, the bloc is working on a broader plan to adjust the structure of Europe’s electricity market, which Energy Commissioner Kadri Simson said she hopes will be “ready early next year.”

Domino effect

One week after Moscow suddenly shut down its main pipeline to Europe, the continent is getting increasingly desperate to stem an energy crisis that’s threatening to become an economic, social and financial crisis too. 

Nordic governments and the UK have separately taken steps to prevent financial contagion, with the UK creating a £40 billion (€46 billion) last-resort fund for energy traders. 

The EU’s liquidity measures still need to be hashed out. European Central Bank President Christine Lagarde has said it’s up to governments - not the central bank - to help. 

Friday’s meeting was just the first step: Ministers asked the commission to propose detailed regulation and then governments will have to sign off. Von der Leyen holds her annual address to the European Parliament on September 14. 

Some ministers warned that the bloc will need time to reach agreement on the various proposals.

“There are 27 states with completely different energy mixes, with completely different geographical positions meaning heavier or less heavy summers and winters, with completely different interconnections,” Roberto Cingolani, Italy’s minister for ecological transition, told reporters. 

“You need to accept that with such a heterogeneous mix of situations, unfortunately it is very difficult to find the silver bullet, the solution that pleases everyone, quickly.”

©2022 Bloomberg L.P.

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