Disagreement Over Gas Price Cap Jeopardizes EU Energy Crisis Plan
The European Union’s energy crisis response plan is being challenged by the bloc’s members’ differing opinions on whether a price cap should be implemented on natural gas imports and, if yes, how exactly this implementation should look. While EU officials try to put on a brave face and send positive signals to the public only, the sheer number of EU members and their very different energy needs and priorities are factors significant enough to make the agreement on such an important issue difficult at best. Once you add to these two factors several members’ open criticism of the idea of a price cap for natural gas imports, the situation becomes even more complicated, with agreement harder to come by. “The discussion is extremely complicated because there are simply different views . . . [but] we want to work hard in the remaining days to reach an agreement,” said Jozef Sikela, Czechia’s energy minister, last week, as quoted by the Financial Times. EU members have been negotiating the crisis management package for months now, with agreement on the gas price cap no closer in sight than it was at the start of negotiations when 15 EU members asked for it. The European Commission has also spoken skeptically about the potential benefits of a gas price cap, but because of the number of EU members that wanted one, last week, the Commission tabled a proposal for a cap. From a certain perspective, it would have been better if it hadn’t. The proposal set the potential cap at 275 euros per megawatt-hour: a price the Commission said would need to be a fact for two weeks before the cap kicks in. It also combined this condition with another: gas prices in Europe should be 58 euros per MWh higher than the average price for LNG on the spot market for ten consecutive days within those two weeks. The backlash was immediate and came from all sides. Traders and exchanges said the proposal could cause severe and irreversible harm to EU energy markets because of its focus on front-month futures only. Excessively high margin calls on the OTC market, where traders would be forced to operate under the cap was one big concern. Additional costs for exchanges was another. Yet traders and exchange operators were not the only critics. Politicians from several EU members also declared their opposition to the cap as too high. Indeed, observers note that even when gas prices in Europe were at their highest this year, at over 300 euros per MWh, they never stayed at 275 euros per MWh for two whole weeks. The level that the Commission proposes, then, is considered unrealistically high to make the cap effective. Spain’s energy minister, Teresa Ribera, told the FT “countries will be killed” if they had to endure gas prices at that level for that long and called the Commission’s suggestion “a joke in bad taste.” So did Poland’s energy minister, Anna Moskwa. “The gas price cap which is in the document currently doesn’t satisfy any single country. It’s a kind of joke for us,” Moskwa said last week, as quoted by CNBC. One unnamed EU official called the cap proposal “a fake price cap.” EU energy ministers are meeting again on December 13 to try and reach some form of agreement on the cap and other measures. Judging by the latest signs, this will be far from an easy job in the absence of an alternative proposal for gas price management. What this means is that discussions will continue until members agree on a watered-down version of the original proposal, as tends to happen with most controversial proposals of the Commission. A watered-down version of a price cap would do little to enhance the EU’s energy security during its toughest winter in decades. Meanwhile, EU members need to be thinking about next winter already. For now, the gas supply is ensured thanks to stable Russian flows during the first half of the year, record-high U.S. LNG imports, and a longer-than-usual storage refilling season. Next year, however, the flow of Russian oil will be a lot weaker than it was this year, and there is no additional U.S. LNG supply readily available to fill in the gap. It could be argued that EU energy ministers should focus on that instead of a price cap that the Commission clearly does not want to implement, and neither do members such as Germany, Denmark, and the Netherlands. Yet the gas piece problem is much more immediate for most governments in Europe, hence its place in the spotlight. The problem is likely to remain in the spotlight for the observable future, whatever EU energy ministers manage to agree on in December—if they manage to agree on something. As the weather gets colder across Europe, it is vital for politicians to be seen to be doing something about energy prices. People are already getting angry with their electricity bills.
India to receive first LNG cargo from Indonesia
India will receive its first cargo from Indonesia’s Tangguh liquefied natural gas (LNG) plant at the Dahej terminal on Monday, according to a Refinitiv analyst and Refinitiv ship tracking data. The LNG cargo is being transported by the BW Helios tanker, said Olumide Ajayi, senior LNG analyst at Refinitiv. “The vessel which had been acting as a floating storage since it lifted the cargo in mid-September is currently on a term charter to British oil major BP and is due to arrive at state-owned Petronet’s Dahej terminal on November 28,” he said.
Moving LNG on wheels for small scale users
Industrial clusters located off the gas grid in parts of Gujarat, Western Madhya Pradesh and Northern Maharashtra are increasingly turning to clean fuel, thanks to the truck transport of the Liquified Natural Gas (LNG). Indian arm of the Shell Plc—Shell Energy India—has started rolling out small-scale LNG supplies through its truck-loading facility from Hazira LNG terminal in South Gujarat. This, according to officials, has helped industries in the off-grid locations to adopt cleaner energy fuels and reduce emissions. Launched in January 2021, the truck-loading facility is not new to India but was first for Shell’s Hazira facility which is surrounded by industrial clusters along the coast of Gujarat and also in the hinterland of Western Madhya Pradesh and parts of Maharashtra. There are quite a few in the 300 kms area. This include Ankleshwar-Bharuch chemicals, fertilisers and pharmaceutical cluster; textiles and engineering cluster near Surat and heavy engineering and equipment cluster at Vadodara. Currently, Shell despatches the trucks with LNG in cryogenic tankers to the remote areas within the radius of 300-500 kilometres from the Hazira facility, which is equipped with 5-million tonnes per annum LNG import terminal. The LNG terminal is connected to all the three major national gas pipelines effectively pushing gas to almost everywhere in the country. Speaking to businessline, Rahul Singh, VP India, Integrated Gas & RES, underlined a growing adoption by small players. He also highlighted that the smaller industrial customers that were off the grid were disconnected from access to LNG. They were not able to have access to LNG for their decarbonisation needs.
GAIL (India) may enter into short-term LNG contracts: Fertiliser subsidy seen above Rs 2.5 trn in FY23, as high in FY24 too
With a sharp spike in prices of liquefied natural gas (LNG) which has pushed up the cost of production of urea, the fertilizer subsidy is likely to cross Rs 2.5 trillion in the current fiscal, 138% higher than the budget estimate of Rs 1.05 trillion, according to official sources. The government reckons that the natural gas prices, which constitute about 85% of cost of production for urea, is likely to be at elevated levels in 2023-24 as well. The government is working out measures for ensuring that LNG is supplied to fertiliser companies at a lower price. One of the proposals being discussed is asking state-run GAIL (India) to procure the fuel on behalf of Indian companies under short-tern contracts. There has been concern about the way the fertiliser companies deal with the issue of gas price as the entire burden of subsidy is borne by the government. It would be the fourth year in a row that the annual Budget spending on fertiliser would be above Rs 1 trillion mark this fiscal, against a lower range of Rs 700 – 800 billion in the past few years. Rating agencies – ICRA & Crisil – too have pegged the government’s fertiliser subsidy to cross Rs 2.5 trillion in the current fiscal