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Gas price cap: five minutes to understand a very symbolic measure


After deciding to cap the price of Russian oil in early December, the European Union did it again with gas on Monday. But the maximum price

The signing of the agreement was announced with great fanfare.

After weeks of negotiation, the 27 agreed Monday on a cap on the wholesale price of gas at 180 euros per megawatt hour, with the aim of protecting European households from the soaring cost of fossil energy.

Gas price explosion

Because before selling their gas to French households, companies like Engie or Total buy it “in bulk” from Russian, Qatari or Norwegian producers.

However, wholesale prices have been increasing since the fall of 2021 and the post-pandemic economic recovery which led to a sudden explosion in demand, without production following.

"Between January 2021 and January 2022, the price of gas was multiplied by six", reminds the Parisian Jean-Pierre Favennec, specialist in the energy sector, consultant at WDCooperation.

Read alsoDecreases and disruptions in deliveries: how dependent are France and Europe on Russian gas?

The war in Ukraine did not help matters because Russia, which until then supplied more than 40% of the gas imported by Europe, skilfully used this dependence to put pressure on the Old Continent, playing with the tap before almost completely cutting deliveries this summer.

According to Swiss radio and television (RTS), only two billion m3 of Russian gas are currently transported monthly to the EU compared to 14 billion m3 before the invasion in Ukraine.

A European response

Each Member State had so far chosen its own parade to protect its citizens.

In France, the tariff shield has frozen since autumn 2021 - and for a few more days - the prices of gas and electricity supplied to households.

Elsewhere in Europe, Belgium and the Netherlands have decided to lower their VAT on energy, while Poland has purely and simply abolished it for gas.

Germany, for its part, has chosen to deploy public aid for heating via this energy.

The agreement signed on Monday is therefore a first common response from the EU.

If the wholesale price of gas exceeds 180 euros/MWh for three consecutive days, all Member States will stop buying it.

Concerns for supply

If the countries of the South imagined an ambitious agreement protecting citizens from soaring prices, other Member States, Germany and the Netherlands in the lead, have slowed down, worried that a ceiling would threaten the supply of the Old Continent.

Because if Europe refuses to buy, "nothing prevents producing countries from selling their gas to other countries", explains Olivier Appert, advisor to the Energy & Climate Center at Ifri.

The EU, which relies heavily on liquefied natural gas (LNG) produced in the United States or Qatar to ensure its supply, fears that all LNG tankers will take the route of Asia and China in particular, where demand exploded.

Too many safeguards to be effective?

"The 27 have therefore cut the pear in half", continues Olivier Appert, "by setting the cap at 180 euros/MWh, an already extremely high price which has only been reached once in the last twelve months" .

In addition, the mechanism will only be activated at a price level at least 35 euros above the average international price of liquefied natural gas (LNG).

“Safeguards” aimed at “preserve our security of gas supply and financial stability”, according to the French Minister for Energy Transition Agnès Pannier-Runacher.

After hours of negotiations, we have reached an agreement 🇪🇺 to contain the price of gas as soon as it exceeds €180 per MWh.

The mechanism provides safeguards to preserve our security of supply and the financial stability of market players.

— Agnes Pannier-Runacher 🇫🇷🇪🇺 (@AgnesRunacher) December 19, 2022

The objective is not to structurally reduce prices but "rather to function like the airbag of a car, to protect us in the event of an accident", an exceptional surge in prices, schematized the Belgian Minister of l 'Energy Tinne Van der Straeten.

The measure should therefore not have a significant impact on the portfolio of French people who will have to cash in on the end of the tariff shield in 2023. Elisabeth Borne nevertheless promised in September that the rise in gas and electricity prices would be limited to 15 % in January and February.

Source: leparis

All business articles on 2022-12-20

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