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COMMENTARY: The Pits of Despair – Price Caps are Back: Irina Slav

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These translations are done via Google Translate

By Irina Slav
More From Irina Slav

I’ve noticed the headlines of my posts recently range from gloomy to outright apocalyptic and I’m sorry if that depresses anyone but I’ve got 30 years of Gothic music and existentialist literature fandom behind me. Besides, finding a glimmer of positivity in news about Europe has been quite a challenge.

With that said, let’s turn to the latest source of face-palming urges: price caps. No, I’m not joking, it’s price caps on the table again but this time it’s gas price caps on the table. And that table is going to see some — metaphorical, I hope — blood spilled.

Earlier this month, several EU member states proposed a price cap on all gas imports into the bloc, Russian and non-Russian alike. The Commission tried to delicately point out this was perhaps not the smartest idea but those members turned out to be stubborn ones.

This week, the 15 wrote a joint letter to the Commission urging it to devise gas import price caps. In case you’re wondering who these pesky member states are, here’s the list: Belgium, Bulgaria, Croatia, France, Greece, Italy, Latvia, Lithuania, Malta, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.

“The price cap (…) is the one measure that will help every member state to mitigate the inflationary pressure, manage expectations and provide a framework in case of potential supply disruptions, and limit the extra profits in the sector. This cap is the priority,” they wrote, as cited by Euronews.

Indeed, setting a cap on the price of natural gas would help every buyer of foreign gas cope better with inflation. The obvious problem, of course, is the sellers’ opinion on the matter, which nobody could expect to be favourable.

The opponents of the price cap, which include Germany and the Netherlands, argue that a cap would make it harder for European buyers to get their hands on gas cargos. Feel free to say “Oh, really?” here. As a result, today’s meeting of energy ministers is going to be exciting.

The very fact that anyone, let alone 15 countries, is in favour of price caps that are almost certain to deepen the European Union’s energy crisis says a lot. And what is says is not good.

What it says is basically “We are so desperate we are ready to risk LNG imports to avoid civil unrest and a wave of bankruptcies. This in fact means we are willing to heighten the risk of civil unrest and a wave of bankruptcies when LNG suppliers say they won’t sell us their gas at these prices. Yeah, we know we’re not making a lot of sense but that’s all we’ve got.”

The most charming part of the price cap proposal is that the cap should be high and flexible enough to allow Europe to attract the required resources.” I know, it doesn’t just sound confusing, it is confusing. If you set a cap high enough to motivate sellers, what is the purpose of that cap?

Yet Capper Camp is not giving up. It is doing quite the opposite, in fact. This from Politico:

All Business Marketing - Teledyne FLIR
All Business Marketing - Teledyne FLIR

“A Commission policy paper meant to guide Friday’s discussion consists mainly of warnings against capping the price of all gas imports, and encourages countries to consume less and renegotiate better supply contracts with “reliable” suppliers like Norway and Algeria.

It also re-proposes Commission President Ursula von der Leyen’s widely panned idea to only cap the price of Russian gas imports.

One national diplomat summarized the general reaction to the reheated policy leftovers: “Da fuck is this?”” I told you they were charming.

What’s even more charming, however, is this Kemp column titled U.S. gas exports squeeze domestic supply. I’m sure U.S. gas exporters would be happy to hear the 15 EU members states’ ideas about price caps, if only because, I assume, they are polite people. And then they would be equally happy to tell them “Hell, no,” which is the most likely outcome of such a hypothetical exchange.

One might rightly wonder why so many EU members are pushing for something that they should know is bound to fail. Or perhaps they don’t know, because they don’t know how markets operate and need a crash course in commodity fundamentals.

That’s quite unlikely, however. European governments do know how markets operate. They simply do not have a better move. That’s why they are pushing for a cap. If that’s not the pits of despair, I don’t know what is.

The Commission is not much better, either. Although it has made some pertinent remarks about the possible ramifications of blanket gas import price caps, it is proposing a cap on Russian gas imports.

Those would be the same Russian imports that have slumped from 40% to 8% of all gas imports into the EU. I’m sure that’s a price cap that will make a lot of difference, beginning with the loss of that 8% of gas imports.



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