EU plans life without Russian gas amid rising inflation

BRUSSELS (Reuters) – European Union leaders warned on Friday that “cheap energy is gone” and agreed to step up preparations for further cuts in Russian gas, accusing Moscow of “weaponizing” energy through tight supplies that Germany warned could partly shut down. industry.

After a day of celebrations putting Kyiv on the path to joining the bloc, Friday’s summit in Brussels was a sobering reflection of the economic impact of Russia’s invasion of Ukraine, with growing concerns about price hikes and warnings of a “hard winter”.

“Inflation is a major concern to all of us,” European Council President Charles Michel told a news conference as the two-day summit ended.

“Russia’s aggressive war is raising the prices of food, energy and commodities,” he said, adding that the leaders agreed to closely coordinate their economic policy responses.

The summit agreed on a few concrete steps, but the leaders tasked the European Commission with finding more ways to secure “reasonable supply” because of Russia’s “armament of gas”.

The search for alternative supplies is already underway, European Commission President Ursula von der Leyen said, with shipments of US LNG up 75% this year compared to last year, and shipments of gas through Norwegian pipelines increasing by 15%.

Besides, the EU executive will present a plan on preparing for further gas cuts from Russia to leaders in July, adding: “Hope for the best, prepare for the worst. That’s what we’re doing now.”

Von der Leyen said the European Commission will come up with proposals and options for discussion at the upcoming EU summit in October, including consideration of alternative market designs likely to include decoupling gas from shaping the market price for electricity.

“We are working on different models, not only to look at how to reduce energy prices or electricity prices but also to look at market design, with the question: Is the market design we have today still fit for purpose?” He said.

One contentious issue is whether governments should intervene to limit prices.

Spain and Portugal set gas prices in their domestic electricity market this month, but other countries warn that price caps will disrupt energy markets and drain state coffers even more, if governments have to pay the difference between the cap and the price on international gas markets.

‘hard winter’

The leaders of the 27 European Union countries blamed the massive rise in prices and declining global growth for the war that began exactly four months ago.

“The idea of ​​cheap energy and the idea of ​​Russian energy is basically gone, and we are all in the process of securing alternative sources,” said Latvian Prime Minister Krisjanis Karenz, adding that governments should “support those segments of society that suffer the most.”

In the wake of the unprecedented Western sanctions imposed on the invasion, so far dozens of European countries have been affected by cuts in gas flows from Russia.

“It is only a matter of time before the Russians shut down all gas shipments,” an EU official said ahead of Friday’s talks.

German Economy Minister Robert Habeck has warned that his country is heading for a gas shortage if Russian supplies remain as low as they are now, and some industries will have to close as winter sets in.

“Companies will have to stop production, lay off their workers, supply chains will collapse, and people will fall into debt to pay their heating bills,” he told Der Spiegel magazine. Read more

The European Union relied on Russia for up to 40% of its pre-war gas needs – up to 55% for Germany – leaving a huge gap to fill an already tight global gas market.

Inflation in the 19 countries that share the euro currency has risen to an all-time high above 8% and the EU executive expects growth to fall to 2.7% this year.

Eurogroup President Pascal Donohue warned that the bloc must “recognize the risks we may face if inflation becomes an integral part of our economies”.

Belgian Prime Minister Alexandre de Croo warned of the possibility of a “hard winter” coming “if we do not pay attention, the entire EU economy will enter a recession with all its consequences.”

Additional reporting; Writing by Ingrid Melander and Jan Struchevsky; Editing by John Chalmers, Alex Richardson and Nick McPhee

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