Hungary is practically exempted from gas price cap - Orbán

"We have reached an agreement on energy. There is a strong and unanimous commitment - the conclusions are very clear - to act together, as Europeans, to reach three goals:

• lower prices
• guarantee the security of supply and
• continue to work to reduce demand,"

said European Council President Charles Michel at a press conference early on Friday after the first day of a two-day Council summit.

European Commission President Ursula von der Leyen said they now have a "very good and solid roadmap" and that EU leaders have given the Council the "strategic guidance" on the proposal the EC put on the table earlier. Energy ministers are next to discuss the proposals next Tuesday, she added.

"The first day of the EU summit has just ended. We will continue negotiations tomorrow, but the most important issue, energy, has been successfully concluded today," Prime Minister Viktor Orbán wrote on his Facebook page, adding that "we have managed to negotiate a fair agreement.

"We have agreed that even if there is a gas cap in Europe, it will not affect the long-term contracts without which Hungary's gas supply would be impossible overnight.

In other words, we will be exempted from the gas price cap, so it would not threaten Hungary's secure gas supply. We have also agreed that if there is a joint gas procurement in Europe, it will not be mandatory for Hungary.

This leaves all [gas] purchase options open for us," he added.

Orbán’s announcement that if there is a gas cap, it will not apply to the long-term Hungarian-Russian gas contract should be interpreted this way: the gas cap would apply to day-ahead spot contracts on the Dutch TTF gas exchange in case of emergency, while the Hungarian contract is linked to the price of the month-ahead TTF futures (derivative) product. Thus, the price cap under negotiation in Brussels would not directly target the contract to which the Hungarian long-term gas contract is linked.

In this sense, no additional concessions were negotiated, as they were simply not needed.

Nevertheless, it is important to note that the Commission’s plan may even alleviate the financial burden of the Hungarian contract, because if the reduction in spot prices can also bring down the price of the month-ahead contract (which is also the aim and normal market logic points in this direction), then Hungary will ultimately have to pay less to the Russians for the gas delivered under the long-term contract.

As regards the joint purchasing of gas, von der Leyen said leaders very much supported the idea to allow companies for the joint purchase to build consortia and to "join forces to increase our common market power for the demand of gas."

There is one binding element in it, namely that "15% are binding to be aggregated as demand on the market together as a joint aggregated demand."

Another agreement was reached on how to eliminate episodes of excessive gas prices, she added. This is the discussion about the benchmark for gas prices (TTF). She reminded that the TTF reflects mainly pipeline gas, but the market is shifting and more and more LNG (liquefied natural gas) is coming to the market, the TTF can no longer reflect the true market situation.

"Therefore we will develop a complimentary new index to better reflect the LNG price situation. We are also going to establish a market correction mechanism, exactly to limit episodes of excessive gas prices, and to make sure that there is a clear order in the build of the market. EU energy ministers are to submit a legal proposal to operationalise this market correction mechanism."

Leaders also discussed a potential mechanism to limit the influence of high gas prices on the cost of electricity.

"We had a frank discussion which further clarified, on one hand, the opportunities, and, on the other hand, highlighted the challenges. We will analyse the financial impact of those countries with a lot of gas in their electricity production, i.e. what does it mean [for them] if we cap the gas to reduce the influence of gas on the price of electricity."

The flow of subsidised electricity to non-EU neighbours also needs to be analysed, said von der Leyen, adding that they will seek to find a well-balanced and common approach.

On his departure from the first day of the summit, German Chancellor Olaf Scholz said that the European Council may have to convene another extraordinary summit in a few weeks if the energy ministers fail to clarify the details of the proposals just agreed within a few weeks.

He expressed his hope that the European Council "will not have to return to the drawing board" and that a consensus decision will be reached in the Council of Ministers. Scholz welcomed the agreement reached on Thursday between France, Spain and Portugal on the continuation of the construction of the MidCat gas pipeline from Spain to France via the Pyrenees, which he said would allow the accession of Central Europe.

The MidCat project, which was abandoned in 2018 following cost and impact studies, was designed to link Catalonia (Spain) to Occitania (France), opening up a third route to bring North African gas from Spain to Central Europe.

Spain, Portugal and France said on Thursday they will build a sea-based pipeline to carry hydrogen and gas between Barcelona and Marseille, substituting plans to extend the so-called MidCat pipeline across the Pyrenees that France opposed.

The route, dubbed BarMar, will mainly be used to pump green hydrogen and other renewable gases but will also temporarily allow for the transportation of a "limited amount" of natural gas to help alleviate Europe's energy crisis, Reuters cited Portuguese Prime Minister Antonio Costa as saying.

On his departure, Belgian Prime Minister Alexander De Croo noted that the document adopted was "the strongest move yet towards the introduction of a gas price cap, which Belgium also supports". The final statement of the EU summit's energy summit said that protecting households and businesses and preserving the EU's global competitiveness were immediate priorities.

The European Council reiterated the need to step up investments in energy efficiency, future-proof energy infrastructure and innovative renewable technologies,

the Council said in a statement.

Among other things, the Council urges

• energy solidarity measures in case of gas supply disruptions at national, regional or Union level, in the absence of bilateral solidarity agreements
• fast-tracking of the simplification of permitting procedures to accelerate the rollout of renewables and related grids, including with emergency measures
• voluntary joint purchases of gas, except for binding demand aggregation for a volume equivalent to 15% of storage filling needs, according to national needs, exploiting the Union’s collective market weight and making full use of the EU Energy Platform

Cover photo: MTI /Prime Minister's Press Office/Vivien Cher Benko