Von der Leyen: It’s time to put a ceiling on the price of Russian natural gas

Von der Leyen: It’s time to put a ceiling on the price of Russian natural gas
Von der Leyen: It’s time to put a ceiling on the price of Russian natural gas

The time has come to put a ceiling on Russian prices natural gas imported into Europe through pipelines, the president of the European Union said today Ursula von der Leyenin order for the EU to counter, as he added, Russian President Vladimir Putin’s attempts to manipulate the European energy market.

“I firmly believe that the time has come to impose a cap on Russian natural gas imported via pipelines to Europe,” von der Leyen told reporters on the sidelines of a conference of conservative German lawmakers in Murnau.

Russia is threatening to completely stop the supply of natural gas to Europe

Former Russian President Dmitry Medvedev has said that Russia will stop supplying gas to Europe if Brussels goes ahead with imposing a ceiling on Russian gas.

Reacting to comments by European Commission chief Ursula von der Leyen about capping the price Europe pays for natural gas, Medvedev wrote on the Telegram messaging app: “There will simply be no Russian gas in Europe.”

Should the EU put a ceiling on natural gas prices?

Energy prices in the EU have soared since Russia invaded Ukraine last February. As a matter of fact, in the past few days the cost of electricity in the EU has been ten times higher than the average of the last decade. And this, mainly because of the increase in natural gas prices.

As consumers shoulder ever greater financial burdens, EU leaders are being called on to act to tame exorbitant energy costs. How could they achieve this? “One way is to put a cap on natural gas prices for electricity,” the website Gzero notes in its analysis.

But how could such a thing be done? One proposal, put forward by outgoing Italian Prime Minister Mario Draghi, is to put a cap on the price of Russian gas bought by EU energy companies.

Such a move would limit Moscow’s bargaining power vis-à-vis the EU. At the same time, however, it would also risk the possibility of seeing Russian “retaliation” such as, for example, the complete interruption of Russian gas flows to the EU by Moscow (examples of which we have already seen through the successive – possibly feigned – interruptions in Russian flows through Nord Stream 1).

Another – more popular but also more populist according to Gzero – option is to put a cap on the price of natural gas used to produce electricity regardless of country of origin. In such a case, EU governments would pay the energy companies the difference between this cap and the higher gas price, so that the companies would not have to pass the cost on to consumers.

The Prime Minister of Belgium calls for a European solution to the energy crisis

The Prime Minister of Belgium, Alexander De Crook, spoke again for a European solution to the energy crisis, speaking on rtl radio.

“We are facing something that we have never seen before, but the solution will come at an international level, therefore also from Europe, with intervention in the natural gas market” noted Mr. De Croo.

The proposals that the Commission is considering

At the same time, according to a report by “K”, two models of the South that are already successfully applied, the Greek and the Iberian, plus a Greek proposal submitted in July to the Council of Energy Ministers by Costas Skrekas, are being examined by the Commission in the context of the formulation of proposals for a common European response to the energy crisis.

For the first time during the long and deep energy crisis, the E.U. it appears open to consider all available options for price de-escalation, lifting the protection of the electricity market’s marginal pricing model that it has generously provided throughout the past, supporting the countries of the North against the demands of the South for structural changes.

The Greek model

According to a Commission document cited by Reuters, the E.U. as a measure of direct intervention, he is considering the Greek model, which provides for a ceiling per power generation technology at which producers are reimbursed, while the difference from the marginal price determined each time by expensive natural gas is collected by the state and directed through the Energy Transition Fund (TEM) in electricity bill subsidies.

“An intervention would introduce a price cap for electricity generation technologies that have lower operating costs (incl. lignite, RES, etc.) than gas-fired power plants,” the document says. The aim of the intervention, the document adds, is to decouple the commercial returns of the power generation in question from the current price of electricity, which has soared as a result of the spike in natural gas prices. Capping the price of certain technologies could generate financial resources for states, which would then be leveraged by governments by introducing measures to cap retail energy prices for consumers.

The memo, according to Reuters, “presents a first set of measures to optimize the operation of European electricity markets and reduce the impact of natural gas prices on the prices consumers pay.”

The Iberian model

At the heart of the discussions, according to factors with knowledge of the negotiations, is the Iberian model, which provides for the imposition of a ceiling on the price of natural gas used for electricity generation. The difference with the import price is covered by a special levy imposed on consumers. The cost of compensating the difference between the ceiling and the import price worries both the E.U. as well as many member states. Both models, however, can be implemented immediately and produce results within a month, which is why they are being eagerly considered by the Commission.

With information from APE-MPE, REUTERS

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The article is in Greek

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