The 27 Energy Ministers have failed again in their umpteenth attempt to achieve a cap on the price of gas. After a marathon day, with several breaks, the capitals have made a lot of progress, more than in the price months, but they have been unable to agree on the figures of a mechanism that is quite outlined, but not enough. The Heads of State and Government will address the issue this Thursday , at the Summit that they have scheduled in Brussels, but they will not negotiate figures. On Monday, the Energy headlines will try again, with the aspiration that January 1 may already be in effect.
The initial proposal of the European Commission was branded as a “bad joke” and a joke by Spain and a dozen other countries. It consisted of activating the gas cap as long as two simultaneous conditions were met : that the price exceeded 275 euros per MWh for two consecutive weeks and that the differential with the market benchmark was at least 58 euros. . Not even in the worst moments of August, with levels skyrocketing, would that correct mechanism have been activated.
The last proposal on the table, debated over the weekend, significantly changed the parameters and has allowed notable progress. To begin with, he lowered the first element that would activate the cap from 275 to 220 euros . Later, he converted the second, the differential with the price of liquefied gas (LNG) on the Amsterdam Stock Exchange, into a dynamic element. It would be activated when the cost was 35 euros higher than that reference. And once activated, it would remain operational for at least 20 consecutive days, to be deactivated if after those three weeks the price was lower for five consecutive days. The third element is that the scope of application was expanded, at least in part. They would no longer be the one-month derivatives, but also the three-month reference in traditional markets. Finally, sufficient safeguards were established for the most reluctant countries, such as Germany and the Netherlands . With them, the mechanism would be deactivated immediately if there were risks to the supply or if financial instability was generated.
The feeling is that, with these basic parameters, the product of weeks of discussion between the Commission, the ambassadors of the 27 and the national technicians, the ministers could outline a solution .
Spain: better without activation threshold
Spain does not want there to be a minimum activation threshold. He believes that it is a mistake to determine a high price, be it 275, 200 or less. He believes that the only thing necessary is that there be a differential with respect to international indicators, something dynamic and not fixed. That when there is a too high ‘risk premium’, the mechanism is activated, because otherwise an erroneous and dangerous ‘market signal’ would be sent, telling producers that paying 200 euros is acceptable . But Germany or the Netherlands refuse. They want it to be a very emergency mechanism, for exorbitant prices.
Among the critics, not all agree and some would be satisfied that this cap was below 200 euros. “There are four key points and we have made progress on two and a half, there is one and a half left,” Vice President Teresa Ribera said upon leaving the meeting. “There is approximation among all and consensus on when to stop applying a correction mechanism, for example if there is financial instability or supply problems or a sudden increase in demand. There is a level of consensus on what products are covered”, he said about derivatives and markets.
“In the debate about the mechanism itself there is a high level of consensus, playing with a basket of indicators in the international markets and offering a premium, a differential. The debate right now is about what that premium should be and if there should be a maximum price to activate it, a very high threshold. We believe not but others believe yes. I am confident that there will be an agreement on Monday because there have been important advances and a very committed debate today”, he has summarized by the vice-president, visibly more satisfied with the proposal of the Czech presidency than with the previous ones of the Commission.
That is why the Council of this Tuesday has been moved. It started later than expected and without comment from most of the ministers. The group of the 15 members most critical of the Commission and most in favor of intervention in the energy market held a parallel meeting to try to unify their position and focus on the points that most they affect them. Some would like a lower price, others that the spread be smaller, and many that the scope of application be more ambitious, from using the references of derivatives at one year to covering over operations. -the-counter, the bilateral ones that account for up to 80% of the volume of transactions.
At noon a pause was decreed so that the presidency could work on a consensus text, but it lasted longer than expected and the ministers did not return to the room until 5:00 p.m. to begin to assess it. At 6:30 p.m., a new recess. And at 7:00 p.m., realizing that understanding was impossible , they decided to throw in the towel and meet again on Monday.
Leaders won’t figure it out
The leaders will inevitably broach the issue this Thursday, but they will not negotiate the details . These are too technical issues for them. Technicians, ambassadors and, at most, ministers are needed. The devil is in the details, in what margins are acceptable, what derivatives must be covered, what terms, whether normal operations or those carried out by large firms bilaterally. And what consequences can it have, political, economic, financial and on the supply.
The message from all the delegations was very clear: the differences on the activation price u and the spread remain o large. The leaders will address the issue, but the solution will not be provided by them. It is somewhat technical, the Dutch or Portuguese have reiterated. What the heads of state can do is tighten the nuts, put pressure so that there is understanding and above all set some guidelines. Determining to what extent the price, or fear of supply, must be the essential point for understanding.
The heads of state and government face each other on Wednesday and Thursday in Brussels for the last Summit of the year and in Charles Michel’s team they already assume that energy would have to be part of the Schedule Thursday somehow . The underlying problem is that it is a large package, with three elements. Two of them, the joint purchase of gas and solidarity between partners in case of problems, have been closed for a long time. They would be, in Brussels terminology, ‘A Points’, ready to be approved without debate in the Council. But Spain and others made it clear last month that there will be no complete package without a cap on gas and that they will not give the go-ahead to the other two items without a satisfactory deal on the third.
