The joint letter of 15 EU energy ministers with which they demanded on 28 September to raise the issue of introducing a ceiling on the wholesale natural gas market by the Commission is a positive milestone in the fight against the European energy crisis. The joint letter signed by the majority of the countries of the Council is an important diplomatic success for our country, which was the first to raise this issue in a letter from the Prime Minister of Greece back in March 2022.

Spent six months and hundreds of billions of euros later, the proposal is being returned even with the support of countries that two weeks ago were ready to support the Commission’s suicidal proposal to limit only Russian gas exported to the EU. through pipelines. The idea is simple in concept and difficult to implement and is obviously not in itself a panacea for the problem we are facing, but if implemented it will divide, as the Spaniards and Portuguese have successfully done since April 2022, the prices of natural gas and electricity. reduction of pressure on the end user. The problem with the Iberian example is that it showed neither the real cost of natural gas imports nor consumption in these two countries, which were called upon to cover the difference between the extremely high price of imports and the real selling price of natural gas from their budgets. gas for electricity generation.

The weakness of the Iberian model is currently being addressed at the pan-European level, on the one hand, by the Regulation on the mandatory reduction of natural gas consumption, which has already reached for August-September 2022 close to the target of 15%. , compared to the beginning of the year, and on the other hand, the adoption of a version of the Greek model regarding the capture of financial resources used to finance from the state either subsidizing electricity costs, or – in this case – and the difference between the price of imports and the price of domestic distribution of natural gas (in the case of Spain and Portugal).

But this is not enough as long as natural gas import prices remain at very high levels, which are influenced by the secondary market in speculative derivatives that make up the majority of transactions on the EU’s main energy exchange in the natural gas market, the Dutch TTF. The point is to put a ceiling on the TTF and some form of upper and lower price range to change the value of the TTF derivatives contracts to limit speculation and the “bubble” of these products did not affect the “real price”. “Contract prices. LNG, which in some parts of the EU deviate from TTF.

The main objection to this horizontal measure, which is still the prevailing view in Germany, Austria, the Netherlands, Denmark, Sweden and, of course, in the Commission itself, is that setting a horizontal ceiling on the underlying market reference price, i.e. . The TTF will prevent the further attraction of global LNG cargoes, which have largely helped replace much of the natural gas that Gazprom itself (with or without sound legal pretexts) has shut down in many European countries, and mainly in Germany.

With pipeline exports from Russia down 70% after the shutdown of the Nord Stream 1 pipeline system, the continued receipt of liquefied natural gas from international markets, mainly the US and Qatar, is an expensive lifeboat that keeps them afloat. . Astronomical (as the case may be) European prices, rather than any (geo)political incentives, have prompted major LNG exporters to divert shipments from Asia to the EU, some of which were already under long-term contracts. Since these shipments are traded on the spot market, they are valued and “hedged” primarily on the basis of the prevailing EU spot contract reference price. namely TTF.

LNG imports are an expensive lifeboat keeping the European economy afloat.

According to the German logic, if the EU’s TTF restriction results in a loss of trade stimulus, LNG cargoes will return to Asia and there will be panic as competition from Asian importers will drive up prices and lead to the loss of cargoes. However, the German side, which has nothing more to lose but a complete shutdown of Russian exports, seems to be ignoring the fact that competition from Asian markets may well arise if the Chinese economy emerges from its pandemic semi-sleep.

The possible return of China to normal economic life will boost prices and demand in Asia, so the question is how the EU will act. will remain attractive in terms of attracting these extraordinary LNG shipments without paying astronomical prices. One possible answer would be to link the TTF after the cap or alternative exchange reference price to the Asian benchmark JKM (Japan Korea Marker) in such a way as to ensure European competitiveness.

The final solution, however, will not provide any ceiling on its own and obviously cannot result primarily from a reduction in consumption that has already reached its limits. The solution will be – in addition to what has already been taken and will be cumulative – the imposition of a cap on TTFs on the one hand, and on the other hand a form of ECB guaranteed energy bonds that could fund the common European LNG markets. subject to a fundamentally functional oligopsony through the European platform. As for the latter, unfortunately we will have to keep a very small basket.

In conclusion, one thing is clear. If no decision is made again – and if it is, it will clearly be because of Germany and the Commission – when we are finally forced to do so as the EU. then the costs that we will have to pay until then and the risk of applying the ceiling will be much greater.

* Dr. Theodoros Tsakiris is Associate Professor of Geopolitics and Energy Policy at the University of Nicosia.