Following G7 oil price cap, EU attention turns to natural gas

EU ministers will meet later this week to consider energy cost controls, against the backdrop of Gazprom shutting Nord Stream on September 2 and amid renewed confidence that western alliances can rein in Russian energy purchases, following last week's G7 outline deal on capping Russian oil prices.

The Irish Independent reported on September 5 that limiting prices for Russian piped gas would be toward the top of the EU's agenda, citing a draft communique handed to Bloomberg News.

EU energy ministers will meet under the Czech Republic's rotating presidency on September 9 to scrutinise a series of market intervention proposals, as Europe heads into the winter demand season.

Possible interventions include measures to reduce electricity demand, and new price caps restricting sell-through rates for nuclear, renewables and coal. A new assessment of EU carbon trading could also be proposed by the Czech presidency in a bid to counter surging electricity prices, potentially restoring carbon permits previously frozen by the EU so that power producers can reduce end prices.

In an extract from the policy paper to be presented to EU energy ministers, the Czech presidency remarked policy should avoid encouraging gas consumption to prevent a reverse in European demand-side measures, which have successfully reined in gas demand in some member states, notably in the Netherlands.

The policy paper stated: "It is clear that the upcoming heating season will test the resilience of the EU energy market. It is critical to take stock of market developments and identify possible measures to address high electricity prices driven by high gas prices."

Germany's federal government responded to the Nord Stream closure over the weekend, introducing a $65bn state funding package for German citizens to be funded partly by a new tax on energy sector players, but focusing on nuclear, coal and renewables producers that have remained unaffected by the gas supply crunch.

The measures include one-off state payments to household energy consumers and tax relief for industrial users, as well as discounted tickets on German public transit routes. Berlin says the new windfall tax could also support a "price brake" on power markets, under which consumers would be guaranteed a minimum floor of electricity at a reduced cost before market rates are levied, according to the New York Times.