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The European Union is gearing up to release emergency measures for a full-scale gas supply shock on Wednesday, with a leaked memo calling for a range of potential actions, from a controversial cap on gas prices to the creation of a new buyers’ “cartel”.
“A different set of measures may become worth considering in the event of a sudden large scale or even full disruption of the supplies of Russian gas leading to unbearably high gas prices and inadequate supply of gas,” the European Commission said in the leaked memo, published by Euractiv.com.
One measure being considered is temporarily capping prices to give customers a reprieve and to reduce inflationary pressure. However, this is a controversial measure that the Commission itself finds dangerous.
Natural gas prices in Europe have historically fallen below 30 euros per MWh, but are now hovering around 100 euros per MWh, and at some points have surpassed 200 euros per MWh, the Commission said, leading to a massive increase in wholesale electricity prices because gas-fired power plants tend to drive prices in the bloc’s power markets.
The Commission also noted that energy prices are expected to remain high for the remainder of this year, and even into 2024-2025.
Price caps, say many market stakeholders, is one emergency measure in the Commission’s “Toolbox” that should be avoided at all costs.
“Short-term price interventions could remove the interest of market participants to hedge against the risk of high prices in the future,” the leaked memo notes, citing an EU official as saying that price caps could lead to lower storage injection, “which must be avoided by any means”.
Instead, some stakeholders are promoting the creation of a “buyer’s cartel”.
German Green MEP Michael Bloss, coming out against a price cap, instead has called for a buyers’ cartel. “The price of gas will fall if G7 only buys gas for a low price. For this, we need courage and creativity and must not simply surrender to the absurdly high gas prices,” he said.
Russia cut off gas supplies to Poland and Bulgaria in late April for their refusal to pay using a ruble scheme. Late last week, Russia threatened to cut off gas supplies to Finland over Helsinki’s decision to apply for fast-tracked NATO membership.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com