EU Urges Natural Gas Price Cap... Will They Reach an Agreement This Time?

UK Energy Regulator: "Significant Threat of Gas Shortage This Winter"

[Asia Economy Reporter Yujin Cho] European Union (EU) leaders are once again urging the introduction of a price cap on natural gas. This aims to reduce the financial resources for Russia's war in Ukraine while lowering soaring electricity bills ahead of the winter season, which has high energy demand. Although the natural gas price cap has been discussed before, conflicting interests among member states have caused previous attempts to fail, leading to expectations that reaching a consensus will be challenging.

According to major foreign media on the 3rd (local time), EU leaders are expected to include in the draft joint statement of the EU summit scheduled for the 7th a call for the European Commission to pursue measures to lower gas prices through a price cap.

The EU has previously discussed the introduction of a natural gas price cap multiple times but failed to reach an agreement due to divergent interests among member states. The natural gas price cap was also excluded from the energy price stabilization measures announced by the EU Energy Ministers' Council on the 30th of last month due to disagreements among member states.

Among the 27 member states, 15 countries excluding Germany, Austria, the Netherlands, Hungary, and Denmark are urging the introduction of a natural gas price cap to overcome the crisis.

Germany, which recorded a record-high consumer price inflation rate of 10% last month and saw electricity prices increase tenfold, announced on the 29th of last month that it would support household and corporate energy costs by establishing a fund worth 200 billion euros amid concerns that inflation could worsen.

As the EU member state with the highest gas consumption, Germany’s measure was introduced out of concern that securing the necessary gas on the global market this winter would be difficult. However, other EU countries that find such a scale of financial support challenging have raised concerns about fair competition.

In response to Germany’s price stabilization measures, Eurozone finance ministers indirectly criticized Germany’s unilateral actions in a statement on the same day, saying, "Future support measures between countries must be well coordinated."

Excluding Germany, France and Italy have each raised funds of 67 billion euros and 68 billion euros respectively to support energy costs, but these amounts are less than half of Germany’s fund.

Ursula von der Leyen, President of the European Commission, also warned Germany’s unilateral measures, stating, "Without a common EU solution, we could face serious risks."

The European Commission also holds the position that implementing a gas price cap without accompanying measures could increase demand rather than solve supply shortages.

Instead, the Commission proposed introducing a price cap specifically on Russian gas as an alternative, but this also failed to gain consensus.

In this context, the inclusion of the price cap issue in the upcoming summit’s draft joint statement could be interpreted as some degree of compromise among member states.

This reflects the recognition that a joint EU-level response is necessary not only because energy prices have surged due to the suspension of Russian gas supplies but also to curb the soaring inflation caused by this. However, there remains a possibility that the final version could change depending on the outcome of the meeting on the 7th.

EU leaders are also expected to request the European Commission to negotiate with alternative gas-exporting countries to Russia and to lower supply prices, in addition to the gas price cap, at this summit.

Meanwhile, the UK energy regulator has warned that the UK economy could face significant threats due to the gas shortage this winter. The European Centre for Medium-Range Weather Forecasts (ECMWF) has forecasted a severe cold wave influenced by La Ni?a, warning that the cold and dry weather in November and December could increase heating costs and worsen the cost-of-living crisis.