Natural gas market prices in the EU

The Russian invasion of Ukraine has had a very negative impact on European energy markets, threatening security of supply and raising energy prices for consumers sharply. Until recently, Russia was the EU’s leading supplier for the main fossil fuels (natural gas, crude oil and coal). However, this close and interdependent energy relationship effectively broke down over the course of 2022, as the EU and its Member States sought to respond firmly to Russia’s unprovoked aggression against Ukraine by providing Ukraine with diplomatic, military, and economic support. Coal imports from Russia were banned from August 2022, while the vast majority (90 %) of oil imports will be banned from December 2022, as part of the EU’s sanctions policy. Russia has either halted or drastically curbed supplies of natural gas via the main pipelines to Europe, prompting the EU and its Member States to scramble for alternatives, mostly in the form of liquefied natural gas (LNG) from a range of supply countries. A high level of gas imports is necessary for Member States to fill their storage capacities before the winter heating season, so they can cope with a possible complete interruption in Russian supplies for the foreseeable future. Deteriorating relations with Russia have contributed heavily to a major rise in the price of the main fossil fuels (gas, oil, coal), especially in European markets (see EPRS infographic), leading to a sharp increase in the energy bills paid by European consumers. This affects households that depend upon energy for their electricity and heating needs, commercial and industrial users that need energy to run their businesses and to manufacture their products, and public services that now face much higher energy costs for their operations. High energy prices exacerbate the existing problem of energy poverty in the EU, and are contributing to a downturn in the European economy, by both raising general price inflation and reducing consumer spending power. The EU and its Member States have been trying to address this myriad of problems, in a way that is compatible with the functioning of the internal market. Nevertheless, the cost of living crisis is so widespread that Member States are under strong pressure from their citizens to use the (varied) financial resources at their disposal to interfere significantly with the normal functioning of energy markets. Since the energy crisis constitutes a negative shock, affecting the whole of Europe, and given that national energy markets have become increasingly interdependent over time, the need for solutions at EU level is pressing. The European Commission’s REPowerEU plan (May 2022) aims at ending Europe’s dependence on fossil fuels from Russia, accelerating the clean energy transition favouring renewable and low-carbon energy sources, and reducing unnecessary energy consumption. Regulation (EU) 2022/1032 of 29 June 2022 on gas storage imposes new requirements on Member States to fill their storage capacities before winter and to take control of vital storage infrastructure where necessary to guarantee security of supply. Council Regulation (EU) 2022/1369 of 5 August 2022 introduces a voluntary commitment from all Member States to reduce their gas consumption by at least 15 % this winter. On 30 September 2022, EU Member States reached a political agreement on a new Council regulation to tackle high energy prices. While the legal text is still being finalised, Member States have broadly endorsed the Commission’s proposal. This Council regulation would cap the excess revenues of certain electricity generators, as well as the excess profits of fossil fuel companies, and use these funds to counter the effects of high energy prices. It would also impose an obligation on Member States to reduce their peak electricity demand by at least 5 % this winter, thereby lowering energy prices and guaranteeing security of supply.