Energy crisis, Ukraine top EU summit agenda

Finding a joint strategy to ease the European Union's ailing energy market is set to drive discussions in Brussels this week, as EU leaders convene for a two-day summit.

Energy prices — determined by the price of gas, coal and oil — had already soared across the globe after COVID-19 lockdowns were lifted and economies opened up, and the war in Ukraine has only exacerbated the crisis. Moscow's decision to cut gas supplies to the EU since launching the invasion has had a dynamic impact on gas prices within the bloc.

Prices rose to a record high of €335 ($337) per megawatt hour (MWh) in the spring. Since then, prices have fallen to about €225 per MWh, but are still up 300% since the start of 2022.

Phuc-Vinh Nguyen, a research fellow at the Jacques Delors Institute, a Paris think tank, told DW that if the war continued to escalate European gas prices would remain relatively high, and could be up to four times as much by 2025. "This will be a big issue for industries and also for consumers," he said.

EU leaders and their energy ministers have held a string of meetings over the past few weeks to find solutions to reduce these high prices. But a united strategy is not yet on the table.

Divisions persist over "capping prices," with some EU states, including Belgium, Italy, Poland and Greece, wanting a pan-European wholesale price cap on gas. Others, such as the Netherlands and Germany are against such a move, fearing it would hurt the global supply and demand of gas.

In an interview with Politico in September, Belgian Prime Minister Alexander de Croo said "if Europe sets the gas price cap 5% higher than regions like Asia, all traders in the world would still continue to sell in Europe, because they would still get a price that is more attractive than Asia."

But according to Philipp Lausberg, an analyst at the Brussels-based European Policy Centre, it's difficult to come to a pan-European agreement to finance a price cap.

"A lot of rich countries, especially Germany, are still wary about contributing more money to on the European level," he told DW. But he added that as a bloc the EU had a much stronger negotiating position than individual member states, and this would enable it to negotiate cheaper prices, which would then benefit consumers.

Containing prices

Charles Michel, president of the European Council,  has called on the bloc's leaders to arrive at a united solution on this matter at this week's summit, particularly in the face of differing domestic circumstances. He said they should focus on "reducing demand, ensuring security of supply and containing prices."

EU leaders will also discuss the European Commission's proposals to contain the energy crisis. The bloc's executive arm has proposed that as a "last resort measure" the EU should set a limit on the main European gas exchange, the Title Transfer Facility (TTF), a virtual trading hub in the Netherlands. It suggested this will help to reduce prices and not distort demand.

As protests erupt across the continent over skyrocketing energy prices, the Commission has also proposed that EU nations could use almost €40 billion ($39 billion) from the bloc's budget to support people and businesses impacted by the energy crisis.

"We will also introduce a temporary mechanism to limit excessive prices this winter, while we develop a new benchmark so that liquefied natural gas will be traded at a fairer price," European Commission President Ursula von der Leyen said at a press conference in Strasbourg on October 17.

Lausberg from the European Policy Center told DW that while a new price index based on liquefied natural gas (LNG) would be relatively easy to introduce and would be able to reduce prices relatively quickly, it would depend on the price of LNG, which is currently cheaper than pipeline gas coming in from Russia, remaining stable.

"If LNG prices rise again, this whole measure doesn't help us anymore. And another problem is if you introduce a new index, then you also need market participants to actually use that index because it's new and people don't trust it yet. That usually takes quite a bit of time," he said.

Further assistance to Ukraine

Besides the energy crisis, potential means of providing further aid to Ukraine as the war continues to rage will also be on the agenda.

As Russian forces continue to bomb civilian areas, Charles Michel highlighted that he would like EU leaders to discuss their assistance to Ukraine, and address how the bloc can cater to Kyiv's immediate needs in the medium and long term.

Earlier this week, EU foreign ministers signed an agreement to enhance Ukraine's military forces and also investigate Iran's involvement in supplying weapons to Russia. 

"The EU Military Assistance Mission will train the Ukrainian Armed Forces so they can continue their courageous fight," Josep Borrell, the EU's foreign policy chief,  said in a statement.

Strategic discussion on China

Michel also called on EU leaders to hold "a strategic discussion" on China, in order to develop a united strategy for dealing with Beijing in the near future.

"We have a renewed relationship with China and will discuss whether we need to adapt or amend our policy toward China," an EU official told reporters at a press briefing in Brussels.

The bloc remains divided on its China policy, with countries such as Germany hardening their stance toward Beijing and France pursuing a restrictive approach. The Baltic states, meanwhile, are also reevaluating their relations. 

But for Mathieu Duchatel, director of the Asia Program at Institut Montaigne in Paris, intra-European convergence on many elements of China policy has been "extraordinary" in recent years.

"The EU has built a toolbox of defensive measures to address the many asymmetries in EU-China trade and investment relations, from investment screening to the recent forced labor ban," he told DW. "While the EU's Indo-Pacific strategy may lack teeth on the security front, it provides EU member states with helpful guidelines to diversify trade and investment away from China, to partners in the Indo-Pacific."

Duchatel added that Europe remains united on its defensive agenda when it comes to China. 

"Increasingly, China is treated as a geopolitical risk that needs to be managed, and patient diplomacy to strive for results despite all our differences is part of that game," he said.

Edited by: Anne Thomas