A growing number of EU countries favour the imposition of a price cap on pipeline gas and LNG imports.
As the European Union stares into the abyss of a potentially catastrophic energy crisis, policymakers are becoming increasingly frantic about what to do next, what message to give and what relief to offer for households and companies under extreme financial stress.
The bloc has so far focused its efforts on collecting extra funds for cash-strapped governments, who are pumping out billions in emergency aid to help cushion the pain from soaring bills.
But with traditional market tools exhausted, public coffers running dry and winter looming, some countries are now turning towards drastic solutions.
Last month, a group of 15 EU countries, including France, Italy and Spain, joined forces in a public letter calling for an EU-wide cap on the price of all gas imports and transactions.
The signatories argue the wholesale cap would help curb prices before expensive gas supplies enter the common market, reach power plants and spill over into electricity bills.
For elected politicians fearing popular unrest and dismal opinion polls, the cap represents a fix worth a shot. But for energy experts, the cap is a leap of faith – one taken out of despair rather than conviction.
“It’s kind of a cry for help,” Elisabetta Cornago, a senior energy researcher at the Centre for European Reform (CER), told Euronews in a phone interview.
The joint letter, Cornago said, reflects the bloc has run out of “low-hanging fruit” to address the energy crisis and is gradually moving away from orthodoxy, despite the potential perils the shift entails.
“My impression is that member states are looking at prices and quantities in isolation and that’s difficult because of economics,” the researcher said. “Prices are high because of scarcity.”
Uncharted territory
The EU’s energy sector is largely liberalised and operates under the fundamental rules of supply and demand.
For the past two decades, the rules worked in sync and offered consumers reliable and stable prices. But when Russia, the bloc’s leading energy provider, decided to launch the invasion of Ukraine, the system was turned violently upside down, exposing its most radical version.
As Western countries imposed sanctions on the Kremlin, Vladimir Putin fought back by actively manipulating much-needed gas flows.
The geopolitical tension threw the supply-demand balance out of the window and prices soared to record highs, leaving the EU scrambling to replace almost 150 billion cubic metres of Russian gas (over 40% of its total annual consumption).
A shopping spree ensued to get hold of as much liquefied natural gas (LNG) as possible, a highly flexible but costly commodity that can help offset the Russian losses.
By late August, prices at the Dutch Transfer Title Facility (TTF), Europe’s main benchmark for gas trading, reached an astonishing €339 per megawatt-hour, about 12 times the mark registered a year before.
By late September, the joint letter asking for an EU-wide gas cap was published.
“With the price cap, I feel there’s a tension between price mitigation, which is the measure’s objective, and the security of supply, which can be at risk,” Cornago said.
“It’s hard to picture such level of market intervention,” she added. “This is uncharted territory.”