ÜApparently, the EU cannot complain about a shortage of liquid gas, at least for the moment. Ships with liquefied natural gas (LNG) are piling up off Spain. More than 35 were waiting, the Reuters news agency reported on Tuesday, even if no one confirmed this in specialist circles. In Spain there is already talk of “overbooking” of the systems. The picture is similar in front of other European countries. The high rush has a price, in the truest sense of the word. After the widespread failure of Russian supplies, Europe pays much more for its gas than Asia or America. Many EU countries have therefore been pushing for a price cap on gas imports for weeks.
However, the German government and the European Commission strictly reject this. They fear that the EU will no longer get enough of the gas it so urgently needs if it stops paying as much. The LNG tankers could turn off at any time and call at other ports outside of Europe. The Commission is therefore primarily focusing on bundling the purchase of gas at European level in order to depress the price. She proposed on Tuesday to jointly buy 15 percent of the gas needed to refill the storage facilities after the winter. In this way, she wants to prevent the states from outbidding each other when shopping, as they did last summer, and thus driving up the price. This also caused the price to rise to more than 300 euros per megawatt hour. Most recently it fell below 150 euros again. But that’s still seven times the previous price.
Brussels wants to interpret current rules generously
The limitation to 15 percent of the demand required to fill the gas storage tanks is explained on the one hand by the fact that there are long-term contracts for a lot of natural gas. On the other hand, the market participants, who have done a good job with purchasing so far, should continue to play a role, according to the commission. Irrespective of the obligation to pool purchasing, the Commission wants to allow companies to form purchasing cartels. Brussels wants to interpret the applicable competition rules generously. However, participation in such shopping cartels should be voluntary.
Furthermore, the EU Commission intends to develop a new price index by March, which should at least partially replace the Amsterdam index for futures contracts TTF, which has previously been used as a reference. In the Commission’s view, the TTF is based too much on the pipeline gas delivered to north-west Europe. Since there is a particular shortage there due to the failure of Russian deliveries, the price is also particularly high. This is also a problem because many long-term contracts are linked to the TTF. The new index, developed by Brussels, is to be based on the LNG price, the share of which in the supply has risen sharply since Russia attacked Ukraine. The proposal does not provide for an obligation to use the new LNG index as a basis. The market has to decide that, according to Brussels. In order to curb speculation on the gas market and prevent extreme price swings, it should become easier to suspend trading for a short time.
All of these proposals are primarily aimed at the supply for the winter of 2023/2024. According to experts, it could be even more difficult than the current winter. This year, Russia still delivered a lot of gas through its pipelines, at least in the first few months of the year. That is unlikely to be the case next year.
In order to reduce prices in the short term, as requested by many member states, the Commission is proposing a correction mechanism. It is intended to cap the TTF price on the spot market for a maximum of three months until the new LNG index is available. The cap should be dynamic, i.e. adapt to the development of the world market price. At first glance, it would come relatively close to the dynamic price cap on gas imports demanded by countries like Italy, but with the crucial difference that by far not all deliveries would be covered. In addition, the Commission leaves the central question open: where it wants to put the lid on. The proposed law only states that it must be chosen in such a way that the supply is not endangered. The Commission wants to work out everything else in a separate legislative proposal after Tuesday’s proposals have been passed. The energy ministers should do this as early as November if possible.
