20th Jan 2022

EU energy ministers clash amid gas price uncertainty

  • 'Gas supply from Russia is 25 percent lower when compared to last year,' EU energy commissioner Kadri Simson told council ministers (Photo: DerGuy82)
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EU energy ministers met on Thursday (2 December) to debate spiking gas and electricity prices.

Going into the European Council meeting, member states were divided if high prices demanded an overhaul of energy and carbon market rules, with opposing unofficial coalitions led by France and Germany.

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Gas prices hit a peak in the autumn due to low storage levels, high global demand and rapid economic recovery.

Lower than expected supply from Russia also played a role, with Russian state-owned Gazprom reporting record-shattering earnings for 2021.

"Gas supply from Russia is 25 percent lower when compared to last year," EU energy commissioner Kadri Simson told ministers.

Threats made by Belarus president Alexander Lukashenko to cut off supply further add to market uncertainty.

In a memorandum published ahead of the council meeting, a French-led coalition called for market reform, saying high electricity prices are unfair.

Due to market design, gas often sets the wholesale electricity price, whilst nuclear energy dominates the energy market in France.

The coalition, which includes Spain, Italy, Greece, and Romania, demanded more consumer protection by requiring power suppliers always to offer long-term consumer contracts.

"We must act in the short term to ensure that consumers perceive the benefits of zero-emissions technologies in prices signals while protecting them from the increasing volatility of natural gas markets," the memorandum said.

They unofficial coalition outlined reforms to decouple the price of electricity from the cost of gas, offering more flexibility, and claim joint gas-buying will increase EU countries' bargaining power, protecting the bloc against market volatility.

Market reform vs existing 'toolbox'

The European Commission has resisted pressure for reform, referring national capitals to the so-called 'toolbox' of national measures - tax deductions and subsidies.

Commissioner Simson also reminded ministers that high energy prices are a global problem, not just a European issue.

The United States, and China - where the largest gas suppliers are state-owned - also face higher gas prices.

Germany, Ireland, the Netherlands, and six other countries also reiterated their opposition to market reform and price caps.

"We agree with the European Commission that in the short term, the price hike can be best addressed through temporary and targeted national actions by member states," they said, in a paper signed by Germany, the Netherlands, Luxembourg, Ireland, Latvia, Estonia and Finland.

"We cannot support any measure that would represent a departure from the competitive principles of our electricity and gas market design," adding that this could "jeopardise affordability, security and supply."

"We were weaker when we had different electricity prices. So interconnections are vital," Irish minister Ossian Smith said.

The group base their opinion on two preliminary assessments that have been made since the last energy council meeting in October.

The Agency for the Cooperation of Energy (ACER), the EU agency responsible for overseeing the single market, concluded "no obvious indication nor evidence of systematic manipulative behaviour or insider trading" on wholesale electricity markets.

Likewise, the European Securities and Markets Authority (ESMA) found no proof of illegal market speculation in the EU's carbon trading market.

Instead, it attributed high prices to normal market behaviour - driven by a faster-than-expected reduction in emissions allowances and increased demand.

ACER and ESMA will publish more in-depth reports on the carbon and gas, and electricity market in April 2022.

France and Spain remained unconvinced and said the current market may not be "future-proof," calling for new debates for reform in April 2022.

Simson told the council she acknowledged the need to "look at the functioning of the retail electricity market" and said the commission would study the French proposals.

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