European embankment in the energy crisis – von der Leyen’s measures and “so far”.

By Chrysostomos Tsoufis

“We want to be reliable partners but we can’t pay any price like…naives.” This is how Ursula von der Leyen expressed the community’s “so far!”

On August 26, the price of natural gas reached the 350€/Mwh spreading terror throughout Europe. Almost 50 days later it has subsided at €112 but even so its price is almost 3 times higher than the corresponding period last year (€44/Mwh).

Thus, Brussels proposes a network of additional measures to reduce prices and “control” their explosive fluctuations.

At the heart of the proposal, even if “watered down”, even if temporary, is a ceiling on the fluctuation of prices on the European natural gas exchange (the TTF index). The ceiling or rather the collar as the Commission named it, it does not aim to stop the increase or decrease of prices but to ensure that the changes will not be so explosive. Whenever the change will exceed this dynamic ceiling, trading will be stopped.

The collar will work temporarily – after all, this is the only way to overcome the objections of countries that “averse” any form of cap, such as Germany – until the reference price index for LNG pricing is put into operation, in March 2023, which will accompanies the TTF which now it has “degenerated” and represents only the pipeline gas.

At the same time, the Commission is finally activating the common natural gas supplies by offering the necessary legal tools. Thus, in the next season the gas needs of the member states will be grouped and bids will be sought in order to cover at least 15% of the targets for filling the warehouses. In fact, companies will have the possibility to form a large European consortium to buy natural gas, a measure that actually helps the weaker countries.

Because a real supply crisis cannot be ruled out where there will be no gas sufficiency, the Commission is introducing so-called mandatory solidarity measures. In essence, all member states will commit that in case of need and if they have the infrastructure, they will help supply a partner as well as that a mechanism will be set up which will pre-determined distribute natural gas to the member states also in emergency situations.

The Iberian-inspired cap on the gas used for power generation remains on the table, but the basic question of who will bear the cost has not been resolved (in Spain and Portugal it is borne by the consumers).

The markets welcomed the measures positively, with the price of natural gas even falling by 12% to €108/Mwh. Overall since the informal Prague meeting the drop is over 38% as the general feeling is that the problem is contained without disrupting their operation.

All that remains is the green light of the European leaders at the Summit on Friday.

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