Sep 9, 2022
0 0

EU guarantees itself five years of energy crisis

Pictured: European Commission President Ursula von der Leyen

Pictured: European Commission President Ursula von der Leyen (Photo: Zuma/TASS)

The European Union continues to develop measures to combat the acute energy crisis faced by the countries of the association. The result of these efforts was a five-point plan, which was announced on September 7 by the head of the European Commission Ursula von der Leyen. Politico found out what the proposals are, and it will hardly surprise anyone that one of the points proposed is to establish a mandatory ceiling on gas prices from Russia.

The EC has previously proposed limiting gas prices to €50 per megawatt-hour, warning that the European Union must be prepared to cut fuel supplies from Russia in response to these moves. How cutting off supplies will help resolve the crisis is not entirely clear, but the EU has clearly been acting out of a non-basic logic lately.

Initially, the authorities of the EU countries disagreed on this issue: Hungary, Slovakia and at least two other countries did not support the initiative, Germany said that it was “skeptical” about the idea, and a number of other states, including Poland and Italy, were in favor of limiting prices in general for all gas imported into the European Union. But, according to von der Leyen, the latter scenario will be more difficult to implement than limiting prices only for Russian energy resources, so this option is a priority.

Other measures proposed by the European Commission include: a mandatory reduction in demand for electricity; a solidarity tax for fossil fuel companies making big profits; support for utility companies, providing them with loans for trading on energy exchanges; limiting the income of non-importing companies that produce electricity from inexpensive sources.

According to von der Leyen, there will be an income tax not only on high-yielding oil and gas companies, but also on green companies and renewable energy technology providers that have received “enormous income from their business.” In terms of consumption cuts, according to the European Commission’s internal documentation, there will be a mandatory 5% reduction in electricity consumption during peak hours, according to The Guardian.

In general, saving, limiting prices and raising taxes – this is roughly what the EU’s brilliant plan to resolve energy problems boils down to. On Friday, September 9, an emergency meeting of EU energy ministers will be held in Brussels, a package of measures may be adopted on September 14.

Leading expert of the National Energy Security Fund and the Financial University under the Government of the Russian Federation Stanislav Mitrakhovich explained to “SP” that without the resumption of supplies of other options, except to sacrifice their own industry, the EU does not have, no matter what plans the leadership comes up with.

“The fact is that savings is the only thing left for the European Union now. It is impossible to find alternative sources of such volumes of gas supplied by Russia. Norway is on a production plateau, LNG is expensive, you have to compete with Asia for it, and you can’t deliver it everywhere.

In three years, this problem will be solved, but the next few winters will be difficult for Europe, and the situation can be solved in only one way – to send industry under the knife. This is the lesser evil in the sense that resources are saved for the utility sector, but nothing more. Other problems remain, and this is unemployment, the need to print money to compensate people for rising electricity prices. For a while, you can print the euro by speculating on its reputation, but then confidence in this currency will fall.

In addition to reducing consumption, the EU may also have to introduce its rationing, when the state decides who to give electricity and who not. New British Prime Minister Liz Truss She stated that she would not resort to such a measure, but she is saying this now, let’s see what happens in the winter. In the EU itself, I think they will recognize the need for rationing, it’s better than just turning off everyone’s electricity.

“SP”: – And how the restriction of prices for Russian gas will help overcome the crisis?

– It will only lead to the suspension of its supply. Perhaps the European Union believes that there are not so many of them left anyway and that one can take a chance. But this significantly increases the risks for the EU. Now gas continues to flow through Ukraine, as well as along the Turkish Stream to Southern Europe, in addition, Russian LNG is supplied. In the event of the introduction of marginal prices, the remaining supplies will be interrupted.

Deputy Director for Energy at the Institute of Energy and Finance Aleksey Belogoriev said that it will be possible to completely overcome the crisis only by 2026-2027.

– This is a motley list of measures, and their effectiveness will be different. Of the fundamentally new here, perhaps the program of assistance to utilities and households, but they are already being implemented in some countries at the national level.

As for taxes and additional payments from energy companies, these are quite expected fiscal measures aimed at redistributing their excess profits in favor of other companies that have to buy expensive gas and go into the red.

A ceiling on Russian gas prices is the most unrealistic measure. Firstly, there is no agreement in the EU on this matter, some countries like Hungary and Slovakia will oppose it to the end. Secondly, it is not clear how to implement it in practice. And thirdly, there is an absolutely clear position of Russia, which was voiced yesterday by Vladimir Putin – The Russian Federation will simply not supply gas to those who will try to impose a price ceiling on it. This is not an empty threat, but a real prospect, especially since Gazprom has already reduced gas supplies by five times, there is very little left.

In addition, the introduction of a price cap is a real gift to Gazprom in terms of its future litigation with European companies, because it is an excellent argument to justify stopping gas supplies. Well, an attempt to introduce a price ceiling for all gas will only lead to its deficit in the European market.

Therefore, for now, this idea looks, on the one hand, as bureaucratic pressure from the European Commission, which wants to establish its control over the conclusion of long-term gas contracts not only with Russia, but with all importers. On the other hand, as the rhetoric of populists like France, Poland and the Netherlands, which do not seriously depend on Russian gas and for which this issue is purely political, without economic consequences.

“SP”: – When will the European Union be able to overcome the energy crisis if they do not enter into a dialogue with Russia?

– Depending on what we mean by the energy crisis. If there are risks of a physical shortage of gas, Europe will need to endure three difficult winters, with winter 2023/2024 likely to be the hardest. The upcoming heating season does not yet look the most risky. This is because if Nord Stream does not resume its work in full, gas supply will become lower and reserves will accumulate more slowly. By the fall of 2024, it will be possible to fill the UGS only by 50%.

The only thing that can be done (besides resuming supplies from Russia, of course) is to reduce demand, and not in the same way as it is now, but by taking tough regulatory measures. All additional LNG will be absorbed by other markets and there will be no new supply for Europe.

The situation will turn around by the spring of 2025, when a massive commissioning of new gas liquefaction capacities is expected, including in the United States. Then the supply of LNG will increase significantly, which will solve the problems with the lack of gas.

But there is a second aspect of the crisis – the price. The replacement of Russian gas in the EU is due to high prices, due to which LNG suppliers are attracted to the market. This situation will continue for at least the next two and a half years. Most likely, the return of prices to the level of 2021 will occur in 2026-2027, as the process of market stabilization will be gradual. Another three or four years of high gas prices in Europe are guaranteed.

Article Categories:

Leave a Reply