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Proposed gas price cap prompts EU discord and Russian threats

The range of proposals are being discussed by energy ministers at an informal meeting on September 9.
The range of proposals are being discussed by energy ministers at an informal meeting on September 9.

The EU has proposed capping the price of Russian natural gas, as Brussels doubles down on efforts to hamper Moscow’s ability to finance its war in Ukraine.

It is among several proposals that the European Commission made on September 7 to ease the impact of the energy crisis on the EU economy, which will be discussed by energy ministers at an informal meeting on September 9. But the proposal has already met with opposition from some member states, and the Kremlin has responded with a threat to cut off energy supply to the bloc entirely.

“We must cut Russia’s revenues which Putin uses to finance this atrocious war”,  European Commission President Ursula von der Leyen said. She said that while Western sanctions had crippled the Russian economy, Moscow had been able to buffer the impact through oil and gas revenues, taking advantage of soaring global prices.

The EU president noted that the EU had already reduced its intake of Russian gas substantially since the war in Ukraine began, with the share of Russian supplies in the bloc’s gas imports falling from 40% to only 9% at present. This has largely been the result of Russian actions, however. Gazprom cut off supply to a number of buyers in the spring for refusing to pay in rubles, and it also began curtailing gas flow via the Nord Stream 1 pipeline in June. The pipeline was closed completely at the start of this month, with Gazprom citing problems with repairing equipment as a result of sanctions.

“Will there be any political decisions that contradict the contracts? Yes, we just won’t fulfil them. We will not supply anything at all if it contradicts our interests,” Russian President Vladimir Putin said at the Eastern Economic Forum in Russia’s Far East on September 7. “We will not supply gas, oil, coal, heating oil – we will not supply anything.”

Moscow would leave Europe to freeze this winter, he said.

Russian gas supplies to Europe have already slumped to an all-time low, amounting to just 3.4bn cubic metres in August, according to transmission data, down 7% month on month. A further decline is expected in September, in light of Nord Stream’s closure.

Several member states have already voiced concern about retaliatory measures by Moscow. 

“If price restrictions were to be imposed exclusively on Russian gas, that would evidently lead to an immediate cut-off in Russian gas supplies,” Hungary Foreign Minister Peter Szijarto said, according to Reuters. “It does not take a Nobel Prize to recognise that.”

Hungary has rushed to make bilateral deals with the Kremlin to secure additional supplies for this winter and has been a consistent opponent of tougher sanctions.

Greece has said it wants a general cap to be applied to all gas transactions with delivery at European hubs and not just imports from Russia. 

Czech Industry Minister Jozef Sikela told Czech lawmakers on September 7 that the cap on Russian gas was not a solution for the current crisis, dismissing it instead as “as unconstructive proposal.”

Germany too has expressed scepticism. “We remain sceptical when it comes to issues surrounding a gas price cap, but we are generally ready for talks in the European framework,” a spokesperson for Germany’s economy ministry was quoted as saying by Politico.

Von der Leyen also called for member states to expand efforts to cut electricity use, and to impose a cap on the revenues of companies that are producing power at a low cost but selling at the current inflated market price. This mostly applies to renewable energy producers, which benefit from low costs compared to conventional energy generators, but sell that energy at the same sky-high market prices. 

“The low-carbon energy sources are making in these times – because they have low costs but they have high prices on the market – enormous revenues. Revenues they never calculated with; revenues they never dreamt of; and revenues they cannot reinvest to that extent,” the EU president explained. “So, it is now time for the consumers to benefit from the low costs of low-carbon energy sources like, for example, the renewables.”

Funds raised from the revenue cap would be used to support vulnerable households and companies, she said.

Likewise, there will also be a cap on the profits of fossil fuel companies, with the funds raised to be used not only to support vulnerable consumers but also for additional investments in domestic clean energy supply.

Lastly, the EU president said there should be liquidity support for energy utilities, to help them cope with the market volatility.