EU aims to scrap long-term gas supply contracts

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82 shares, 143 points

Brussels has proposed a ban on long-term contracts to import natural gas into the EU beyond 2049 in an attempt to end the bloc’s reliance on foreign producers led by Russia.

The European Commission on Wednesday unveiled an update of its gas market rules, which includes a prohibition on member states entering gas contracts with non-EU countries that run beyond 2049 — the last year before the EU aims to hit its net zero greenhouse gas emissions target.

“No long-term contracts for supply of unabated fossil gas shall be concluded with a duration beyond the end of year 2049,” states the commission proposal, which will require agreement from a majority of EU governments and MEPs to come into force.

The proposed ban on long-term contracts comes as Europe has suffered from record prices for wholesale gas since the autumn. The price surge has been driven by factors including rising global demand as countries recover from the pandemic, reduced supply of renewable energy and lower additional supplies from Russia.

Russia, the EU’s largest single supplier of natural gas, has preferred long-term contracts and said the energy crisis was caused in part by EU countries’ moves to phase out such purchasing agreements. “This practice is a mistake,” Russia’s president Vladimir Putin said in October.

“Long-term contracts are normally used to open new sites of gas production and ensure their profitability,” said Kadri Simson, the EU’s energy commissioner. “This ban sends a strong signal that such activities should not be pursued unless emissions are abated. This repeats our clear message that our gas market will be decarbonised by 2050.”

Brussels’ ban will apply only to “unabated” fossil gas, which does not use ways to reduce CO2 emissions, including carbon capture and storage.

Russia, which supplies a third of European gas needs through state-backed monopoly producer Gazprom, reacted cautiously to the commission’s proposals.

“Let’s wait for the decision they actually take. Normally, a discussion ends with a more weighed approach,” said Pavel Sorokin, Russia’s deputy energy minister. “So let’s wait until they are done talking and see the final proposals. Then, let’s wait another 10-15 years and see whether they remain in place.”

With Russia also pledging to be carbon-neutral by 2060, Sorokin said the move to a greener future was a common goal.

“We absolutely must move toward ecological neutrality, it’s a non-disputed fact that everyone has accepted and everyone is moving to. But we must do it without slogans but with real calculations and a real understanding of prices.”

Sorokin warned that a move away from long-term gas contracts could lead to even higher prices and potential social unrest. “Remember what happened with the gilets jaunes in France? It happened because of a higher ecological tax on gasoline. Now imagine what happens when [the commission] reveals the actual cost of all these actions,” he warned.

Konstantin Simonov, head of Russia’s energy security fund, called the timing of the proposals “foolish”.

“When the spot gas price is skyrocketing, [it] seems the agenda should be the opposite. It’s like Europe is trying to worsen the crisis,” he said. “When experts even in Europe say long-term contracts are a way out, the officials want to cancel them. It’s very strange. Well, let them go for it, let’s move everything to the spot market and see what happens.”

Gazprom declined to comment. But the company has repeatedly pointed out that it is fulfilling all its contractual obligations, and that Europe should consider longer-term deals if it wants more gas.

The commission has also proposed a voluntary system of joint gas procurement and shared storage for EU countries, many of which have demanded drastic changes to the internal energy market to damp rising electricity prices. Brussels will encourage member states to carry out joint purchases in times of emergency.

Simson said countries should carry out national risk assessments based on their purchasing and storage needs. “These reserves could be released in times of emergency and be in line with EU energy market and competition rules,” added the commissioner.

As part of its plans to decarbonise gas, Brussels will introduce rules to increase production of biogas and green hydrogen. Biogas has a 70 per cent smaller carbon footprint than natural gas but makes up less than 5 per cent of the EU’s total gas consumption, according to the commission. Brussels will also propose cutting entry tariffs for low-carbon gas and integrating these sources into the EU’s gas grid.

EU leaders will discuss the proposals at a summit in Brussels on Thursday.

Source: Financial Times

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