Skyrocketing Energy Prices Hit as EU Debates Gas Price Cap

Skyrocketing Energy Prices Hit as EU Debates Gas Price Cap
Pipes at the landfall facilities of the Nord Stream 1 gas pipeline are pictured in Lubmin, Germany, on Mar. 8, 2022. (Reuters/Hannibal Hanschke/File Photo)
Bryan Jung

Soaring energy costs continue to hit Europe hard this week, as governments in the region are struggling to contend with the rising cost of energy, after Russian gas was drastically cut earlier this month.

Russia cut natural gas and oil exports to Europe after the European Union, the United Kingdom, and the United States placed sanctions on Russia for its invasion of Ukraine.

European governments are attempting to reduce the financial pain caused by Russia’s withholding of vital energy supplies.

Russia once supplied 40 percent of the EU’s gas needs before the invasion of Ukraine, which has now fallen to 9 percent, after Moscow cut supplies in retaliation to sanctions.

Gazprom, the majority state-owned energy company, announced on Sept. 2 that natural gas supplies via the Nord Stream 1 pipeline would remain shut off indefinitely.

The Russian energy firm justified its actions by saying that EU sanctions against Russia have resulted in technical problems preventing it being able to provide full service through the pipeline.

The remaining flows of natural gas from Russia to Europe along other routes are steady for now.

Desperate Energy Measures

The European Commission will announce a set of emergency measures for the 27-nation bloc at a meeting on Sept. 14, which will include a windfall profit tax on energy firms and a rescue plan for power companies facing financial difficulties.

However, EU policymakers are still disagreeing over certain details among member states, primarily over the issue whether or not to impose a price cap on gas prices.

The price caps, which only targeted Russian gas imports, were removed from the initial plan on Sept. 12, after warnings from Hungary and Austria that Russia could cut off their supplies, too, in retaliation.

European energy ministers initially added a cap on gas prices at the emergency meeting on Sept. 9 in order to reduce the skyrocketing energy bills of citizens and businesses.

The 27 member states will have to universally approve the proposed energy measures, which is expected to take place at an another meeting later this month.

Meanwhile, Norway, a close associate of the EU and a member of NATO, and the largest gas supplier to the bloc after Russia, said it also was against price caps.

The Norwegians have been making record profits since Russia cut supplies to its European customers.

The government in Norway said it would continue to be a reliable supplier of energy for its friends in Europe, but it declared that the terms of trade should be decided by the companies that purchase or pump the gas, not the governments.

Norwegian Prime Minister Jonas Gahr Stoere said, “We’re going to the talks with an open mindset, but are skeptical toward a maximum gas price,” after meeting with European Commission President Ursula von der Leyen.

Stoere said that imposing a maximum price cap would not solve the EU's gas shortages.

Member States Take Action

Meanwhile, the French government, on Sept. 12, said that it was unable to cover all of the energy costs for its citizens.

French Finance Minister Bruno Le Maire said that the total burden of price increases could not be entirely placed upon the state budget and that there will still probably be a “contained increase in gas prices and power prices.”

Le Maire also said that the government would still try to protect its citizens from new energy price caps this winter and that households would have to absorb only a small portion of the higher costs.

Germany said it would increase state loans available for struggling energy companies by utilizing a credit program that was created for a pandemic relief fund, according to its finance ministry on Sept. 14.

The business newspaper Handelsblatt reported that the German government would release some €67 billion from the fund to state development bank KfW in order to provide guarantees and liquidity assistance to energy companies hit by cuts in gas imports from Russia.

The German Federal Cabinet is expected to approve draft legislation for the credit plan on Sept. 14, which will then be sent to the Bundestag for a vote.

The European Union also granted members access to €225 billion in untapped loans from the bloc's emergency recovery fund on Sept. 12, according to a senior EU official statement to Reuters.

The €800 billion fund was set up last year to help its 27 members recover from the pandemic and to encourage them to invest in green energy.

"Member states may request loans to finance additional investments and reforms, including those which already had their plans adopted," said European Commission Vice President Valdis Dombrovskis to the EU Parliament's economic committee.

Reuters contributed to this article
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.