In order to keep the high gas prices down, the European energy market is undergoing an even more radical overhaul and direct government intervention on the trade price is getting closer and closer. On Tuesday, the European Commission presented a new package of proposals aimed at quelling the growing concern about the energy crisis in the EU. The plans have been put together at high speed and, according to Brussels, should have an effect this winter.
These are unprecedented measures that will permanently restructure the energy market – with unknown and possibly unwanted effects, according to critics. At the same time, the plans may not go far enough for a group of Member States, which have been calling for price interventions for months and seem to be growing impatient by the day. This Thursday, government leaders will come to Brussels for a summit that will focus on the energy crisis.
‘Price correction mechanism’
The hottest part of the package focuses on the Title Transfer Facility, the gas exchange that operates from the Netherlands. In recent months, criticism has grown against that virtual and influential trading forum. The TTF is designed for the supply of pipeline gas and would no longer be representative of the market now that the share of liquefied LNG gas has grown significantly in recent times.
The Commission now wants to accelerate work on supplementing the TTF with another pricing platform. But in anticipation of such a new benchmark, Brussels also wants to be able to intervene directly on the existing stock exchange in the coming months. To this end, it is developing something that is euphemistically called a ‘price correction mechanism’, but which actually amounts to maximizing the price at which gas can be traded.
In a press conference on Tuesday, President of the European Commission Ursula von der Leyen called it a “dynamic price ceiling”. Brussels emphasizes that such an intervention can only take place at strictly defined moments, as a ‘last resort’ and when there is ‘extreme volatility and price increases’. But she purposely leaves open how high the price is at such moments and to what level it should be reduced.
Until recently, the European Commission advised against government intervention in the price of gas
For example, under great pressure from EU member states, the Commission is once again moving a bit in the direction of government intervention on the trading price of gas, which it strongly advised against until recently. One of the reasons for this reluctance: the negative consequences that such an intervention could have for security of supply. If Europe starts to push the gas price, there is a risk that LNG ships will change course, towards, for example, Asia. Another fear is that an artificially low price will push up gas consumption, while savings are actually necessary to better balance supply and demand.
According to von der Leyen, the ceiling will be ‘flexible enough to guarantee security of supply and control gas consumption and high enough to allow the market to function’. Whether that is sufficient to convince skeptical countries such as the Netherlands and Germany is uncertain. The Commission President stressed that thinking about price caps has evolved and more and more countries are becoming convinced of its importance. The fact that its own Commission has come this far is because enough ‘preconditions’ have now been created so that the measure can still come in handy.
Joint purchasing
After all, the Commission’s proposals go further and as a whole form a ‘framework’. The tightening up of the existing plan to jointly purchase gas at European level is also crucial. So far, this intention has yielded little, mainly because participation in the ‘purchase platform’ is voluntary. The Commission is now proposing to add an obligatory element, whereby 15% of European gas storage must be put out to tender jointly. It means that competing energy suppliers have to work together in a gas consortium.
The hope is that by joining forces, the EU can enforce better prices on the global gas market. In addition, the proposal should prevent Member States from bidding against each other when filling their surcharges and thus pushing the price further into the air – as happened in August this year. That risk will be at least as great next year, because Brussels is already predicting that it will be a lot more difficult in 2023 to get European gas storages to the desired filling level.
Saving and mutual help
Another condition for further market intervention is that gas consumption falls. If the existing voluntary agreement to use 15 percent less gas is not met, it must quickly become mandatory – and possibly even tightened. Until now, according to EU rules, households had to be exempted from savings obligations. Now the Commission is suggesting that ‘non-essential consumption’ of ordinary consumers may be limited. She gives an example of restricting the heating of terraces and outdoor pools.
Finally, the European Commission presented guidelines on Tuesday on how member states should help each other, should acute gas shortages arise. The principle of solidarity applies within the EU: when a country can no longer supply its own ‘protected consumers’ – private households and hospitals, among others – neighboring countries must step in. But because many EU countries have been hesitant to make concrete agreements about mutual aid until now, Brussels is now coming up with a standard set of agreements.
With the total package, Brussels is increasing its grip on the liberalized energy market, in the hope of lowering prices and further guaranteeing security of supply. Whether it is enough to convince EU member states remains uncertain. For example, Southern European member states in particular are still demanding a decoupling of gas and electricity prices, while The Hague and Berlin remain skeptical about price interventions for the time being.