“Link the reduction of bills to that of consumption”

Villa Matteo – Photo Ispi

At the microphones of iNews24, Matteo Villa, researcher at the Institute for International Political Studies (ISPI), on the energy emergency.

The European Council gave the European Commission a mandate to make proposals on price caps and joint gas purchases.
“With regard to joint gas purchases, the objective is for them to be binding for 15% of total storage, not for all the gas that Europe buys. It’s a good way to say basically that they don’t want to do it, because the storage in Europe satisfies 30% of the consumption. 15% of 30% is 4 and a half. It is therefore proposed to carry out joint compulsory redemptions for around 4.5%. There is no progress on this, except for a symbolic and minimal measure. Obviously, if you buy one-twentieth of the gas on a regular basis, the prices don’t go down”;

Explain …
“The purpose of group purchases is to present yourself as a single buyer in front of the others. But if Europe negotiates for one-twentieth of the gas it needs and nineteen out of twenty is left to the negotiation of the States, that does not create a collective force, but only a small part of what would be necessary. It would therefore be an agreement that would only take one step forward out of nineteen”;

Then there is the issue of the mobile gas price cap.
“The Italian proposal, the bankruptcy, which essentially plans to impose, for example, the lowest price on Russia, is not pursued in the gas price cap. There is a mediation proposal to try to set up a new index in relation to the Amsterdam stock exchange with an extremely complicated idea, because there is no better European index than the Ttf. Therefore, anyone who says that the Amsterdam stock exchange is not representative of gas in Europe is mistaken because it is not true”;

Why?
“The Amsterdam Stock Exchange is the most liquid we have in Europe and it also has a huge problem. In other words, you can speculate on it without having limits on daily increases or decreases. On this, the European Council’s attempt is clear: provide for a sort of daily or weekly maximum and minimum fluctuation band, after which we will see, which makes sense in trying to prevent the FTF from moving too much. This is good for avoiding more serious speculative movements. For example, in August they rose to 350 euros per megawatt hour, then fell to 250 after a few weeks. But the weekly or monthly price levels of the Amsterdam Stock Exchange are quite plausible. Just compare them with the Asians: it’s practically the same thing. Therefore, to say that the TTF is not representative of the European market is to take the risk of making citizens believe that the price of gas today is high solely because of speculation and not because it does not there is no gas. This is serious and it is a very populist approach to the problem which does not solve things but risks complicating them: citizens will think that they do not have to save petrol, which on the contrary is what must first”;

So there is not enough gas in stock right now?
“Right now we are full. There are so many that the price on the Amsterdam Stock Exchange is very low. These days, it’s gone from 250 euros per megawatt hour to almost 100. However, that doesn’t mean there’s enough for the whole winter, if at all. We recently made simulations which tell us that in different scenarios we will arrive at the end of February with very little gas in storage, because the latter satisfies 30% of European demand. The rest must arrive during the winter with imports. Without Russian gas, we are able to compensate a lot, but a good part is still missing: at least 10 to 15% of our usual consumption. So on the one hand there is now a lot of petrol, more than enough in October, on the other hand there is the risk of not having enough petrol for February March, it will also depend on the cold. According to various scenarios we are on the hunt, according to others we are in crisis”;

How will the “energy war” end, both for Russia and for Europe?
“I don’t know if Putin knows it, but Gazprom knows it very well: they have started a battle which they are winning and only winning big in the short term. They put Europe’s back against the wall, raise prices and even make money. Gazprom will record minimum revenues of around 100 billion euros this year: more than double before the crisis. They are taking revenge for the economic crisis that we have caused them with the sanctions, also putting us in crisis”;

What will happen in the long term?
“In the medium term, if Putin continues like this, he will lose the biggest market he has. Anyone who says that China will compensate is saying colossal nonsense: the European gas market is four times bigger than Asia. For l he future, for Gazprom, China is a market to be developed. It is almost certain that for a decade it will not even reach half of what Europe was. In two years we will be much better off because we have started to diversify while they are going to run out of steam. When they want to redo a deal with Europe, the conditions will not be the same as before. If anything, we will make a deal, it will be at a fixed price. And this point will be post-Putin Russia which will have to manage the situation. Obviously, it would also be practical for us because at the moment Russian gas is the only one that allows us to have low and stable prices until ‘until we have completed the transition’;

The government that will be formed in Italy will face high bills. What measures should be taken?
“It makes perfect sense to decouple gas and electricity prices. If done right, it costs nothing because it simply means raising taxes on the excess profits of electricity generators and then redistributing them the following year. The European way, if we really follow the Spanish model, will be a little different. This would mean putting a price cap on the price of gas to produce electricity, compensating electricity producers with public money and letting the market do the rest. There would be a gain in terms of bills (Spanish is half of Italian) but also a high cost of State debt which must compensate gas producers that without State money they would never produce”;

Is it wise, in Italy, to use the budget variance?
“Yes, it is possible, but it has to make sense. If you’re spending $40 billion now to lower everyone’s bills a bit, that doesn’t make sense. There are people who, even with the raises, can still afford to pay them. And in a short time it would be difficult to calibrate the costs on the ISEE. Moreover, by reducing the bills now, in three months the problem would become more serious because the gas will be scarce. It is a big risk, without explaining to the citizens that the only alternative is to save gasoline”;

How do you think people can be encouraged to use gas responsibly?
“The alternative is not to put a subsidy or to reduce bills. It is rather to link the reduction of bills to that of consumption, through super discounts which would be seen next year”.