EU response to energy crisis looms amid rising oil, gas prices

Energy prices began soaring last year after the lifting of pandemic lockdowns, followed by Russia’s war in Ukraine this year.

Pipes at the landfall facilities of Nord Stream 1
European gas prices reached a record high of 343 euros ($335) per megawatt-hour in late August [File: Hannibal Hanschke/Reuters]

Brussels, Belgium – All eyes are on Brussels this week as European Union leaders convene in Belgium’s capital to find a joint solution to tackle the energy crisis, which has been gnawing at the bloc for more than a year.

Energy prices – determined by the price of crude oil, natural gas and coal – began soaring last year as a result of COVID lockdowns being lifted, followed by Russia’s invasion of Ukraine this year.

“Russia’s war on Ukraine has severe consequences on global and European energy markets,” European Commission President Ursula von der Leyen said at a press conference in the French city of Strasbourg on Tuesday.

Before the war, 40 percent of the gas used in the EU was supplied by Russia. But in July, due to Moscow’s aggression in Ukraine, the bloc agreed to cut Russian gas usage by 15 percent, in an effort to wean off its dependency.

A general view of the hemicycle at the European Parliament in Brussels
The energy crisis has been gnawing at the EU for more than a year [File: Yves Herman/Reuters]

In retaliation, the Kremlin cut gas supplies to the EU with Russian gas giant Gazprom announcing that the Nord Stream 1 (NS1) pipeline, which delivers gas to EU countries like Germany, would be shut for maintenance work indefinitely.

Jacob Funk Kirkegaard, a senior fellow at the German Marshall Fund of the United States in Brussels, told Al Jazeera that Russia’s actions could imperil the European energy crisis “a lot” in the short term.

“But in the medium and long term, it will greatly accelerate the EU’s green agenda, helping the bloc transition to using more solar, wind and nuclear energy, and also become independent of Russia, OPEC [a global cartel of petrol-producing nations] or any other fossil fuel producers,” he added.

Divisions on price caps

After European gas prices reached a record high of more than 343 euros ($335) per megawatt-hour in late August, protests erupted across the EU with people calling on the bloc to find sustainable solutions.

But according to Kirkegaard, EU nations will continue pursuing different strategies because of their domestic circumstances.

“There is a trade-off between social peace, energy demand and fiscal costs that each government will have to find according to their own circumstances,” he told Al Jazeera.

“Given the negative impact the energy price rise has on living standards and purchasing power, it is quite predictable that protests will occur,” Kirkegaard added.

INTERACTIVE - Where Europe gets its energy from

Some EU nations, like Belgium, Italy, Poland and Greece, are keen to set a limit on gas prices. Others, like Germany and the Netherlands, fear a price cap would paralyse the gas supply market.

European Council President Charles Michel has called on the 27 EU leaders to arrive at a united strategy on price caps by focusing on “reducing demand, ensuring security of supply and containing prices”.

The leaders will meet in Brussels on October 20 and 21 and also discuss whether the price-cap scheme introduced by Iberian countries Spain and Portugal over the summer, could be introduced at a pan-European level.

European Commissioner for Energy Kadri Simson said that the “Iberian model” could be useful, but told reporters in Strasbourg on Tuesday that the European Commission would not support a price cap. She said it would lead to an increase in gas demand, inducing prices to increase once again.

The EC proposal

Meanwhile, to support citizens and businesses affected by the energy high prices, the European Commission has proposed to allocate funds worth close to 40 billion euros ($39bn) from the bloc’s budget.

“We will all introduce a temporary mechanism to limit excessive prices this winter, while we develop a new benchmark so that liquified natural gas (LNG) will be traded at a fairer price,” von der Leyen told reporters in Strasbourg.

To ensure prices eventually stabilise, the commission has also called on EU countries to jointly purchase at least 15 percent of the gas volume needed to meet their individual gas storage targets.

The aspect of setting a price limit on gas trades at the Title Transfer Facility (TTF) – a Dutch gas centre which serves as the foundation for gas trading in Europe, in order to bring down gas prices, was also proposed. But the commission added that this price limit would not distort the demand and supply of gas.

These proposals will be discussed by EU leaders later this week.

‘Transition to new sources’

Meanwhile, environmental businesses are worried that the EU’s solutions to balm the energy crisis in the face of the escalating war would harm the environment further.

“Increased energy targets will help lower our dependency on Russian fossil gas, enhance member states’ energy security – shield homes, communities and businesses from skyrocketing energy bills as well as the worsening impacts of the climate crisis, for safe winters and summers,” they said in a letter directed to the Czech Republic’s Prime Minister Petr Fiala, whose country currently holds the presidency of the Council of the European Union.

Frans Timmermans, executive vice-president of the European Commission, said that the EU would focus on transitioning to renewable sources of energy and called on EU nations “to consider ways to fund additional investment in Europe’s green energy transition”.

On October 14, Greece toyed with powering electricity using only renewable sources of energy like solar and wind energy for five hours.

According to the country’s Independent Power Transmission Operator, at 9am local time (06:00 GMT), a record high of 3,106 megawatt hours of electricity was generated.

Nikos Mantzaris, a senior policy analyst at Athens-based think-tank the Green Tank, told Al Jazeera that Greece’s example may serve as a model for coal-plagued countries such as Poland, Czech Republic and Bulgaria.

“The EU should also move from subsidising consumption of electricity and fossil gas towards subsidising energy savings as well as projects, which will lower the carbon footprint permanently,” he added.

Kirkegaard shared a similar view and highlighted that the EU could learn lessons from the past.

“In 1973, there were also energy price spikes because of an oil shock. The main lesson from those experiences is that you need to reduce demand and you need to transition to new sources of energy,” he said.

Source: Al Jazeera