ECONOMY

European governments weigh billions in aid to weather soaring gas prices

Newsletter: Europe Express

Surging gas and electricity costs are forcing European governments to discuss billions of euros in aid for households and stricken suppliers, as concern mounts over a deepening winter energy crisis.

EU energy ministers will meet this week to discuss national responses to a surge in wholesale gas prices, amid concern that they will jeopardise Europe’s post-pandemic economic recovery and undermine Brussels’ plans for ambitious but costly green reforms.

Italy is expected this week to unveil a multibillion-euro support package for households. A source at the Italian finance ministry with direct knowledge said “a plausible amount to tackle the issue [of soaring energy costs] could reach up to €4.5bn”.

Rome has already spent €1bn to intervene directly in the energy market to cut consumer prices. Italy covers more than two-thirds of its energy needs with imports.

Italy’s plans follow Spain’s decision last week to raid what it says are energy companies’ excess profits and provide tax breaks to consumers. Companies are expected to mount a legal challenge to the move, which has driven down share prices.

France has already announced a €100 subsidy for almost 6m low-income households. The UK’s government is also considering providing energy companies with emergency state-backed loans to take on unprofitable customers from failing smaller suppliers, and has admitted that several companies could go bust in days.

Equinor, the Norwegian state-controlled oil major, said on Monday that it would increase its gas supply to Europe by boosting production from two North Sea fields from Friday. Equinor said it was looking at further ways to boost exports. 

“We believe that this is very timely as Europe is facing an unusually tight market for natural gas,” said Helge Haugane, head of gas and power at Equinor. Norway is the biggest natural gas supplier of the EU behind Russia.

The surge in wholesale gas prices has been driven by falling storage capacity during a prolonged winter in Europe last year, as well as lower natural gas exports from Russia to north-west Europe this year ahead of the start-up of the politically controversial Nord Stream 2 pipeline.

Gazprom, Russia’s state-backed monopoly gas exporter, has fulfilled all of its long-term contracts to customers but not made additional top-up sales available through Ukraine this year, while allowing its own storage facilities in Europe to fall to low levels.

Alexei Miller, chief executive of Gazprom, said on Friday that while Europe was facing a potentially prolonged period of record prices this winter, “the Asian market is more attractive for producers and investors”.

Other energy companies have warned there are no quick fixes for Europe’s supply shortages. Claudio Descalzi, chief executive of Italy’s Eni — one of the world’s largest oil and gas companies — said on Monday that while governments were right to try to speed up the adoption of renewable energy, they had chosen to tackle supply of fossil fuels before demand, contributing to tightness in the market.

“This is not something that is for a limited time, it’s structural,” Descalzi told the Financial Times when discussing the surge in gas prices. “You cannot cut supply without also reducing demand,” he said, warning that growing pressure from governments, activists and investors had made it very difficult for energy companies to invest in gas supplies.

The price squeeze has emboldened critics of the EU’s plans to reduce greenhouse gas emissions by raising the cost of CO2 on petrol and heating bills over the next decades. Brussels is urging EU countries not to derail its proposals for higher carbon taxes, saying these are crucial to pushing companies to switch from fossil fuels to more sustainable energy sources.

“The current situation makes the case for the Green Deal policies even stronger. We need more change, not less, and faster”, Kadri Simson, EU energy commissioner, told the FT. “The only real, long-term solution here is to increase the share of renewable energy, which is already generally the cheapest energy on the market.”

In Germany, Europe’s largest economy, Verivox 32, a price comparison website, said regional gas providers had announced price increases of 12.6 per cent on average for September and October. That would lead to additional costs for heating a one-family house of €188 a year.

France’s heavy reliance on nuclear energy and system of regulated prices means the country is not as immediately vulnerable to higher prices as elsewhere in Europe. But industry and consumer groups have begun to sound the alarm about the looming impact this winter.

Consumer group UFC-Que Choisir has estimated that an average household could pay 10 per cent more for electricity in 2022 — €150 more a year.

With an election due in 2022, the French government is wary of consumer anger at higher prices. It wants to prevent a rerun of 2018’s gilets jaunes protests sparked by proposed petrol tax hikes.

Additional reporting from Richard Milne in Oslo, Anna Gross in Paris and Guy Chazan in Berlin

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