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EU countries agree gas price cap, Russia responds

  • By Al Mayadeen English
  • Source: Agencies
  • 19 Dec 2022 19:53
4 Min Read

The gas price cap is set at 180 euros per megawatt hour.

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  • European Union flags flutter outside the EU Commission headquarters in Belgium. (REUTERS)
    European Union flags flutter outside the EU Commission headquarters in Belgium. (Reuters)

After four months of the debacle, EU energy ministers agreed on setting a price cap for natural gas with Malta's minister announcing that the threshold was 180 euros per megawatt hour.

"We are speaking about a price cap set at 180 euros," Maltese Energy Minister Miriam Dalli said. "It wasn't an easy thing to achieve."

The deal opens the door to other steps, such as cooperative gas purchases and a prospective new benchmark for gas pricing, to alleviate the energy crisis that Europe is experiencing as a result of its imposed sanctions on Russia.

One group sought to urgently lower gas prices by capping the maximum price that may be charged for the gas used to generate power. 

The other, backed by economic powerhouse Germany, was wary of a price restriction that could be triggered too easily and deter the supply of liquefied natural gas (LNG) to Asia's more lucrative markets.

Germany ultimately supported the 180-euro price restriction, which was far less than the 275-euro cap that the European Commission had initially suggested, as per an EU ambassador.

On Monday, the benchmark price for pipeline-delivered natural gas in Europe was trading at just under 112 euros per megawatt hour. Over the summer, it briefly rose to close to 340 euros per megawatt hour.

"We have managed to reach a very important agreement on the price ceiling for gas," said Czech Industry Minister Jozef Sikela, who chaired the meeting under his country's EU presidency.

"Europe will thus have a package of measures to help it prepare for next winter and protect citizens and businesses from extreme price volatility," he added.

The criteria attached to the negotiated cap were not immediately evident.

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The commission has proposed that it could only be activated if the threshold price was exceeded for two weeks in a row, and even then, only if the price of LNG remained over a specific level for the majority of that time.

Given all the precautions, it was "not easy to understand its eventual impact," as per Simone Tagliapietra, a specialist in EU energy issues at the Bruegel think tank in Brussels.

"This is no silver bullet," he said, adding that EU nations still needed to reduce consumer and industry demand for gas-powered energy and put more effort into the switch to greener sources.

On its account, the Council of the EU stated that the temporary mechanism to limit excessive gas prices is not to be applied to over-the-counter trades, in addition to day-ahead exchanges and intra-day exchanges.

Russia reacts to price cap, vows to respond appropriately

Simultaneously, Kremlin Spokesperson Dmitry Peskov said the attempt to control gas prices is unacceptable, stressing that Moscow will make the proper decision, as it did with the regulation on oil.

“The principles are the same here. This is a violation of the market pricing, an attack on it. Any references to a price cap are unacceptable. It will take time to carefully assess the pros and cons. The oil process dragged on a little," Peskov told journalists.

Peskov asserts that Moscow's response to the ceiling on gas pricing would be the same as it was when Russian oil was subject to sanctions.

The West's plans

Western nations have been trying to find ways to reduce Russia's income from oil and gas exports since the start of the war in Ukraine.

In October, the EU introduced the eighth package of sanctions against Moscow, which included a legislative basis for setting a price cap for maritime shipments of Russian oil to third countries.

Russia had pledged to stop exporting its oil to countries that would apply price caps on its oil.

Meanwhile, those who violate the price cap on Russian oil exports will suffer from consequences under the domestic law of the jurisdictions enforcing the quota, according to US Deputy Treasury Secretary Wally Adeyemo.

  • EU
  • Gas prices
  • Price cap
  • European Union

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