EU plans for a life without Russian gas amid rising inflation

  • ‘The notion of cheap energy is gone,’ says Latvian PM
  • Inflation in the euro zone has skyrocketed to record highs
  • Germany warns some industries may have to close this winter

BRUSSELS, June 24 (Reuters) – EU leaders warned on Friday that “cheap energy is over” and agreed to boost preparations for further Russian gas cuts, accusing Moscow of “arming” energy through a supply crunch that Germany warned could partly shut down its industry.

A day after celebrations to put Kyiv on the path to bloc membership, Friday’s summit in Brussels was a sober reflection of the economic impact of Russia’s invasion of Ukraine, with growing concerns over rising prices and warnings of a “harsh winter”.

“Inflation is a big concern for all of us,” European Council chief Charles Michel told a news conference at the end of the two-day summit.

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“Russia’s war of aggression is driving up the price of food, energy and raw materials,” he said, adding that the leaders agreed to closely coordinate their economic policy responses.

The summit agreed on some concrete steps, but the leaders tasked the European Commission with finding more ways to ensure “affordable supply” due to “Russia’s use of gas as a weapon.”

European Commission chief Ursula von der Leyen said the search for alternative supplies was already in progress, with US LNG deliveries up 75% this year on last year, and pipeline gas deliveries. from Norway 15%.

In addition, the EU executive will present a preparedness plan for more Russian gas cuts to leaders in July, he said, adding: “Hope for the best, prepare for the worst. That’s what we’re doing right now.” .

The European Commission will present proposals and options for discussion at an upcoming EU summit in October, including consideration of alternative market designs that could include decoupling gas from electricity market price formation, von der Leyen said.

“We’re working on different models, not only to look at how to curb energy prices or electricity prices, but also to look at the design of the market, with the question: is the design of the market that we have today still suitable for purpose?” he said. she said.

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

Spain and Portugal capped gas prices in their local electricity market this month, but other states warn that price caps would disrupt energy markets and further drain state coffers if governments had to pay the difference between the cap price and the price in international gas markets.

“HARD WINTER”

Leaders of the 27-nation EU blamed the war that started exactly four months ago for a huge spike in prices and a drop in global growth.

“The notion of cheap energy is gone and the notion of Russian energy is essentially gone and we are all in the process of securing alternative sources,” said Latvian Prime Minister Krisjanis Karins, adding that governments must “support the parts of society that suffer the most. “.

Following unprecedented Western sanctions imposed over the invasion, a dozen European countries have so far been hit by cutoffs to 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 warned that his country was headed for a gas shortage if Russian supplies remained as low as they are now, and some industries would have to close in winter.

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

The EU relied on Russia for up to 40% of its pre-war gas needs, rising 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 has soared to record highs above 8% and the EU executive expects growth to fall to 2.7% this year.

Eurogroup chief Paschal Donohoe warned that the bloc must “recognize the risk we could face if inflation becomes embedded in our economies.”

“If we don’t pay attention, the entire EU economy will go into recession with all its consequences,” Belgian Prime Minister Alexander De Croo warned of a possible “hard winter” ahead.

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Reporting by Jan Strupczewski, Phil Blenkinsop, Marine Strauss, Bart Meijer, Francesco Guarascio, Kate Abnett, Charlotte Van Campenhout, Benoit Van Overstraeten, Gabriela Baczynska; written by Ingrid Melander and Jan Strupczewski; edited by John Chalmers, Alex Richardson and Nick Macfie

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