What the European Union is doing about the price of gas

Strong increases in gas and energy prices are still a big problem across Europe and discussions to find a solution within the European Union continued on Friday at an informal European Council attended by heads of state and government of member countries in Prague, in the Czech Republic. For months the member states have been trying to find a common solution to calm the price of gas, but the sensitivities are very different and the introduction of a cap, therefore a limitation of the free market , does not convince everyone.

Some, like Germany, fear that the introduction of a price cap will convince suppliers to go and sell their gas elsewhere, while others fear that states will have to intervene to compensate energy companies. The member countries are considering above all an Italian proposal to identify a mobile index rather than a fixed ceiling, which seems to find consensus. But unanimous decisions in Europe remain complicated, and no agreement has yet been reached.

The 27 heads of state and government were already in Prague since Thursday for the inaugural meeting of the European Political Community, a new format of international meetings promoted above all by French President Emmanuel Macron and which expands cooperation to 17 European states but outside the European Union, including the United Kingdom, Turkey and Norway plus other Eastern European states. The main theme was the sharp rise in the price of gas, with all the economic consequences it has on the purchasing power of households and businesses.

For months there has been discussion in Europe about a possible introduction of a cap on the price of gas, also known as price cap, or in a generalized measure or only aimed at the Russian one. The Italian Prime Minister Mario Draghi, who is convinced of the fact that being able to lower the cost of energy is already a good start to stop the price increase (inflation in September touched for the first time 10 per cent in the euro area).

A price cap in practice, it would envisage establishing a maximum figure, lower than current prices, which could save European countries but which would still be convenient for suppliers. The proposal has never been considered seriously due to some technical difficulties on how to apply it concretely and for the fears of some countries, above all Germany, that suppliers may decide to export their gas elsewhere, where they could do so at a price. higher, thus canceling months of efforts to find alternative suppliers to Russia.

Italian Minister for Ecological Transition Roberto Cingolani has said several times that the Germans are more worried about having no gas than about its price. This is because, unlike many other European countries, they have a tidy public budget and the ability to spend much more than others. Also for this reason, the German government of Olaf Scholz has presented a 200 billion euro plan against price increases, which has received a lot of criticism.

The latest proposal from the European Commission on price cap it dates back to early September, when he proposed to impose a cap on Russian gas only. But then the subsequent consent of the energy ministers failed and nothing more was done. However, there is a group of 15 countries, including Italy, Spain, Poland and Belgium, which continue to put pressure on them to talk about it again.

In a letter sent to the leaders and made public Wednesday evening, the President of the European Commission Ursula von der Leyen gave an answer to these countries and reiterated again, albeit evasively, the need to discuss a temporary “limitation of gas prices. And that’s exactly what was done in Prague.

First of all, there is the need to design a new mechanism for setting the European gas price. The reference market in Europe is based in the Netherlands and is the Title Transfer Facility (TTF). In the European Union there are various similar markets (for example, in Italy there is the PSV, the Virtual Trading Point), but it is the Dutch TTF that sets the reference prices for the entire continent, because it is where the most part of the exchanges. Many blame the high prices on speculation that would take place on the Dutch market, but in reality many distortions derive from the particular characteristics of this market.

Compared to other international realities, the Dutch market is all in all small compared to all the gas consumed in the European Union, where most of the raw material arrives via pipeline and is regulated by long-term supply contracts. Hence, few exchanges determine the price at which one buys and sells on an entire continent, which has caused significant distortions. In fact, as these are relatively small volumes, the fluctuations due to the movements of a few operators can be very large. This has created many problems of volatility, that is, of sudden variations, even very large ones.

It is with the aim of redesigning the mechanism that Italy circulated a new technical document during the meeting to intervene on the gas market. It would no longer be a question of a price ceiling, an expression that has now become difficult for some states to accept, but of a “dynamic price corridor”: the reference price of gas would become an average of the prices applied on international reference markets larger and more stable than the FTT, which would be allowed a margin of fluctuation.

In this way, both gas suppliers, who would not be imposed a fixed administered price, would be met, and countries worried about overly directing interventions.

The Italian government at the moment seems to be able to count on the support of the other states that have so far lobbied for the price cap and he is convinced that the European Commission is also positioning itself along this line, thus facilitating the work of convincing Germany, the Netherlands and the other skeptical states up to now.

During the informal summit in Prague, the leaders addressed the issue from a more political point of view. The technical details will be discussed among the energy ministers at the meeting scheduled for next Tuesday and Wednesday in Prague. The European Commission will then have to present a proposal, which at that point should include a mechanism similar to that developed by Italy. And it is possible that an agreement will be reached at the European Council on 20 and 21 October, which will also be Mario Draghi’s last as President of the Council. Draghi, in a press point at the end of the meeting, said that “things are moving about energy”. He then added that “the issues were not discussed in much detail” because the technicalities will be defined directly by the European energy ministers before the next European Council.

Another need that became evident during the meetings concerns the need to forge stronger and more stable relations with the countries supplying gas to the European Union, in order to be able to obtain prices that are lower than the market ones. Also in Prague, the leaders also discussed energy with countries outside the European Union which they involved in the context of a new European political community.

Ursula von der Leyen insists that the reduction in prices will inevitably pass through negotiations with Norway, which has now become the first supplier of raw materials to the Union (getting a lot of money, by the way).

Von der Leyen has made public a joint statement with the Norwegian Prime Minister Jonas Gahr Støre according to which we must “develop together an instrument to stabilize the energy markets and limit the impact of market manipulation and price volatility”. In his speech at the meeting, Støre reiterated that Norway will continue to increase gas production as much as possible, while at the same time seeking a solution “to reduce these excessively high prices significantly in the short and long term”.

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About Banner Leon

Videogames entered his life in the late '80s, at the time of the first meeting with Super Mario Bros, and even today they make it a permanent part, after almost 30 years. Pros and defects: he manages to finish Super Mario Bros in less than 5 minutes but he has never finished Final Fight with a credit ... he's still trying.

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