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Rocketing energy prices take a hit as Europe debates gas price cap

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LONDON/PARIS, Sept 12 (Reuters) – Europe fuel prices soared on Monday, with France saying it could not afford the extra costs for consumers, while Britain risked recession.

The European Union and Britain are struggling to defuse the shock of what some politicians call an “energy war” with Russia, which has cut gas exports to Europe after the West imposed sanctions over its invasion of Ukraine.

The European Commission is set to unveil a package of proposed emergency measures for the 27-nation EU on Wednesday, including a windfall profit levy on energy firms and a life-raft for power firms facing a liquidity crisis.

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But diplomats said the countries are divided over details and whether to impose a cap on gas prices. Read more

Meanwhile, Russia said it was difficult to predict the consequences of a new arbitration process initiated by Ukraine’s energy firm Naftogaz on gas shipments to Europe. Read more

In France, Finance Minister Bruno Le Maire said consumers would be protected by new caps on fuel prices when current runs out this winter, but stressed that households would need to absorb a “small part” of the increased costs themselves.

“Putting the burden of this increase solely on the state budget is completely irresponsible,” Le Maire said, adding that “there will be an increase in gas and electricity prices.”

In Britain, where inflation hit a 40-year high of more than 10%, the economy expanded 0.2% in July compared with June, less than the 0.4% expected. A sharp rise in energy costs has hurt electricity demand and a surge in material prices has hit the construction sector. Read more

“The disappointingly small rebound in real GDP in July suggests the economy has little momentum and is probably already in recession,” said Paul Dales at Capital Economics.

Meanwhile, as the European Commission draws up the next series of EU measures, Norway warns against gas caps.

‘too little gas’

“We are going into the negotiations with an open mind but are skeptical about the maximum price on natural gas,” Norwegian Prime Minister Jonas Gahr Storey said Monday after a call with European Commission President Ursula von der Leyen.

“A maximum price does not solve the fundamental problem, which is that there is too little gas in Europe,” he said.

Norway, a close ally of the EU after Russia cut exports in the wake of the Ukraine war, has become the bloc’s biggest gas supplier, after its petroleum industry posted record revenues as prices soared.

While Norway aims to become a reliable supplier of gas to Europe, the Nordic country said the terms of trade should be determined through negotiations between the companies that pump the hydrocarbons and the firms that buy them.

The bloc’s energy ministers asked the European Commission on Friday to add a gas price cap in a bid to reduce soaring energy bills for citizens and businesses before winter.

But countries disagree on whether such a cap is necessary and what form it should take, diplomats said, ranging from price caps on all imported gas, pipeline flows, wholesale gas trade or supplies from Russia.

The EU’s 27 member states need to approve the energy measures, possibly at another emergency meeting later this month.

‘unpredictable’

EU ministers finally backed away on Friday from price caps targeting only Russian gas, warning that countries including Hungary and Austria could see Moscow cut even dwindling supplies it sends to the West.

Russia supplied about 40% of the EU’s gas before it invaded Ukraine. That share fell to 9% as Moscow cut supplies, blaming technical problems caused by the sanctions.

Naftogaz said on Friday it had launched new arbitration proceedings against Gazprom, saying the Russian firm has not paid on time or in full for gas shipments through Ukraine.

“There may be a lot of unexpected things from our Western colleagues and leaders of Ukraine’s gas industry,” Kremlin spokesman Dmitry Peskov said. Read more

The flow of natural gas from Russia to Europe remained steady on major routes on Monday morning, but the Nord Stream 1 pipeline remained closed. Read more

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Reporting by Reuters Bureau; Writing by Ingrid Melander; Edited by Alexander Smith

Our criteria: Thomson Reuters Trust Principles.

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