EU leaders struggle to find short-term fix for energy crunch

4 minute read

U.S. President Joe Biden and European Council President Charles Michel shake hands, during a European Union leaders summit, amid Russia's invasion of Ukraine, in Brussels, Belgium, March 24, 2022. REUTERS/Evelyn Hockstein

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  • "Tough" discussion on energy price caps ends with patch-up
  • Biden promises LNG for Europe as it moves away from Russia
  • Leaders worried about impact of high energy prices on consumers
  • No agreement on banning Russian oil and gas imports

BRUSSELS, March 25 (Reuters) - EU leaders failed on Friday to agree a short-term solution to the energy market crunch made worse by Russia's invasion of Ukraine, but did offer a compromise for Spain where spiralling fuel prices have led to 12 days of trucker blockades.

An intense debate on whether to cap energy prices, pitting some southern countries against Germany and the Netherlands, pushed the second day of an EU summit into the evening, with Spanish Prime Minister Pedro Sanchez at one point walking out of the meeting room.

In the end, they settled on trade-off and left a number of issues unresolved.

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The war in Ukraine has pushed energy prices to record highs and prompted the European Union to seek to cut Russian gas use by two-thirds this year, by finding gas elsewhere and boosting renewable energy.

While the Mediterranean rim states pressed for a cap on wholesale gas prices to shield poorer households, opponents said this would entail public cash subsidising fossil fuel generation.

The leaders charged the European Commission with urgently assessing what short-term options, from price caps to tax rebates, could help reduce gas and electricity prices.

Italian Prime Minister Mario Draghi told a news conference after the summit that the EU executive would discuss options with large oil and electricity companies.

"We expect to have some proposals by May," he said.

Spain and Portugal did secure permission to implement temporary measures to curb their electricity prices.

European Commission President Ursula von der Leyen said this "special treatment" was possible because the Iberian peninsula was largely detached from the rest of the EU power grid, although the EU executive will also assess short-term plans proposed by other EU members.

Earlier on Friday, U.S. President Joe Biden - who joined the first day of the summit - committed to helping Europe with more LNG deliveries as it grapples with the need to reduce dependency on Russia for its energy needs.

Russia supplies 40% of the gas the EU needs for heating and power generation and more than a quarter of its oil imports.

Belgian Prime Minister Alexander De Croo, who backed southern European countries' push for market intervention, said governments across the EU faced mounting public pressure.

"Today is about the everyday issues of the people and that is the electricity and gas invoice of the people," he said. "We are at war and in a war you need to take extraordinary measures."

DEPENDENT ON RUSSIA

There was agreement among the 27 member states on a plan for joint purchases of gas to tame prices.

The European Commission has said it is ready to lead negotiations on pooling demand and seeking gas before next winter, following a similar model through which the bloc bought COVID-19 vaccines on behalf of member states. read more

"We've seen some countries going towards other countries to negotiate their own contracts. That, and I told colleagues this, is not the best way as we are pushing prices up," French President Emmanuel Macron said.

However, the EU remained divided over whether to ban Russian oil and gas imports in addition to the slew of sanctions it has imposed on Moscow since the invasion a month ago.

Moscow calls its actions in Ukraine a "special military operation" to demilitarise and "denazify" Ukraine. Kyiv and the West say Putin launched an unprovoked war.

Europe's dependency on energy from Russia means the question of an embargo, as the United States has imposed, is economically risky, and no decision was taken on Friday.

Germany, Hungary and Austria were among the most reticent about imposing a ban on Russian oil and gas.

No common position emerged either on Russia's demand this week that "unfriendly" countries must use roubles to pay for its oil and gas. read more

Draghi said leaders agreed that any such Russian demand for gas exports would represent a breach of contract.

The Kremlin's demand poses a dilemma for countries reliant on Russian energy because, by agreeing to it, they would be shoring up the rouble and channelling hard currency into Moscow - but refusal could mean their energy supplies dry up.

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Additional reporting by Philip Blenkinsop, John Irish, Jan Strupczewski, Sabine Siebold in Brussels, Belen Carreno in Madrid, Bart Meijer in Amsterdam and Benoit Van Overstraeten in Paris Writing by Ingrid Melander and John Chalmers Editing by Matthew Lewis

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