EU negotiators have struck a huge deal to cap gas prices in a move that could see the Kremlin’s revenues plummet as the bloc attempts to alleviate the energy crisis. Wholesale European gas prices have surged over the last year due to Russia’s war in Ukraine and Russian President Vladimir Putin’s supply cuts to Europe, having a huge knock-on impact on billpayers on the mainland and in the UK too.
In efforts to control the astronomical price spirals that have laid bare Europe’s staggering dependence on Russian gas – which Putin has been receiving billions for despite the war – negotiators in the union have been long-engaged in a heated back-and-forth over a measure that would see natural gas prices capped.
But on Monday, Energy ministers struck a landmark deal when they met in Brussels to discuss the latest draft, ending a dispute which lasted months. Under the agreement, a gas price cap will kick in if prices on the main European gas exchange, the Dutch Title Transfer Facility (TTF), surpass €180 (£157) a megawatt-hour for three working days in a row.
This level is far lower than the one originally set by the European Commission – €275 (£240) a MWh, which sparked fury among countries supporting the cap who called for it to be made lower.
Belgium, Spain and Poland had been leading the charge for a price cap below €200 (£175) to be set as prices continued to surge across the continent. But this proposal faced pushback from countries that feared that this would encourage energy suppliers to send their gas supplies to alternative buyers like China.
To please both camps, a €180 cap will only come into effect when the TTF price goes €35 (£30) above global reference price for liquefied natural gas (LNG) for three consecutive working days.
Germany, the bloc’s biggest gas-guzzler that was wary of a price cap, was persuaded by the compromise and backed the plans as a result. The cap can now be triggered from February 15, 2023.
German Economy Minister Robert Habeck said on Monday ahead of the Brussels meeting: “Nobody in Germany is against low gas prices, but we know we have to be very careful not to want to do something good and trigger something bad.”
Russia has erupted in fury at the measure, likely over fears that Moscow’s cash flow from the bloc will plunge due to the measure. Kremlin spokesman Dmitry Peskov called it an attack on market pricing.
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He told Russia’s Interfax news agency: “This is a violation of the market price-setting, an infringement on market processes, any reference to a [price] cap is unacceptable.”
But sentiment in the EU was far more positive, although officials did note that the Netherlands and Austria abstained from the measure. Czech minister for trade and industry, Jozef Síkela, who chaired talks between energy ministers, said that while negotiations had been a huge challenge, it was finally “mission accomplished”.
Gazprom’s CEO Alexei Miller has previously said that the Kremlin-controlled energy giant would consider an energy price cap as a violation of existing contracts, warning that it would end supplies flowing into Europe if it rolled out such a measure.
He said back in October: “Such a one-sided decision is of course a violation of existing contracts, which would lead to a termination of supplies.” And the Russian President himself sent a similar warning.
Putin said: “We will not supply gas, oil, coal, heating oil — we will not supply anything. We would only have one thing left to do: as in the famous Russian fairy tale, we would let the wolf’s tail freeze.”
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But such a threat may not be so intimidating to the bloc any longer given that since then, the majority of supplies flowing into the bloc have already been cut. The bloc has responded by ramping up its gas storage levels ahead of the winter, striking deals with alternative producers such as Qatar.
However, Qatar warned the EU today that it could cut off its deliveries of LNG to the bloc amid a heated corruption row. It comes after MEPs voted to suspend legislative work on a visa liberalisation deal with Doha, banning all Qatari officials or business representatives from the European parliament. This came following the arrest of disgraced Greek MEP and a vice-president of the European parliament, Eva Kaili.
She has been accused of being in involved in a bribery network that has the intention of helping Qatar to secure a positive deal on a pending visa liberalisation agreement. Police also seized more than €900,000 (£785,000) in cash from suitcases owned by her and husband Francesco Giorgi, an aide at the EU assembly.
An official statement by the Qatari mission to the EU, warned: “The decision to impose such a discriminatory restriction that limits dialogue and co-operation on Qatar before the legal process has ended will negatively affect regional and global security co-operation, as well as discussions around global energy.”