MOTOR FUELS AND POWER GENERATION - WILL CEILINGS PROVIDE SOLUTIONS? - Filenews 15/3 by Chrysanthos Manoli
For consumers and their organizations in the European Union, caps (setting maximum wholesale or retail prices) are the easiest, fastest and most effective solution when the prices of motor fuels and electricity production (gasoline, diesel, natural gas, fuel oil-diesel) skyrocket, either due to shortages in the market or due to geopolitical turbulence.
These days, both conditions seem to apply: Both shortages in the supply of crude oil and natural gas (and their derivatives) and serious geopolitical turmoil, due to the war in the Middle East and the attacks on oil wells and production terminals. But will the ceilings provide solutions to consumers?
In the European Union, there has been serious discussion in recent days about the central imposition of a ceiling or the granting of the option to member states to take advantage of this practice, depending on the individual data in each country. Already, Greece, Croatia and Hungary have announced maximum allowable prices for motor fuels, as well as for overbought basic products. In other countries there is concern, but there are also objections.
The bad experience of 2010
In Cyprus, the possibility of imposing a cap on retail fuel prices seems a very remote possibility, despite the public statement of the Minister of Energy Michalis Damianos that the market is being monitored and all possibilities remain open.
The previous unpleasant experience, with the cap on gasoline and diesel prices in 2010, when suddenly... the fuel "disappeared" from the gas stations and kilometer-long queues of upset consumers were created (as a reaction of importers and gas station owners to the measure), is a disincentive for the Ministry of Energy and the Consumer Protection Service.
Gas station owners in Cyprus point out through their organization that there is a predetermined profit rate for gas station owners (about 5%), so any ceiling will affect the revenue and viability of the gas stations. And they counter-propose, in case it is deemed necessary, to impose a ceiling on the wholesale price, i.e. on the companies that import and wholesale motor fuels and not on the gas station owners.
A more likely scenario, however, in case the increases per liter in gasoline and diesel continue in the coming days and weeks is the reintroduction of government measures to reduce the consumption tax on fuel, for the temporary relief of consumers.
Things are dark for the EAC, which will inevitably buy more expensive fuel oil and diesel in the coming period and inevitably the cost of electricity - during the summer season of increased consumption) will increase.
Natural gas
There is also strong concern in Brussels. The price of natural gas, the main fuel for electricity production and industrial operation has skyrocketed after the start of the attacks on Iran and the country's countermeasures on neighbouring energy facilities. Some days the price increase rose or exceeded 60% compared to the days before the start of hostilities, while on average the increase is estimated at 50%.
It was officially announced by Ursula von der Leyen that the European Union is considering measures to limit energy prices, including a cap on natural gas prices.
Even before the sharp rise in oil and gas prices due to the war in Iran, Brussels was drafting proposals in an effort to relieve industries that are seeing their competitiveness with companies in China and the United States decline.
"It is vital to reduce the impact on costs when gas sets the price of electricity," the Commission president told the European Parliament. "We are preparing different options: better use of energy purchase agreements and contracts for difference; State aid measures; and we are exploring subsidizing or limiting the price of natural gas," he said.
The EU's electricity system (the well-known target model, which has been applied since October '25 in the Cypriot competitive electricity market) is designed so that the last (and most expensive) electricity seller, which is needed to meet the total demand, determines the price of all electricity. Often, this is a natural gas producer, therefore, sharp increases in gas prices skyrocket electricity prices, even when much of the energy is generated from cheaper renewable or nuclear sources.
The EU introduced a cap on gas prices in 2022, when Russia invaded Ukraine and reduced gas deliveries to Europe, pushing prices to historically high levels and forcing some industries to shut down.
Force majeure and landslide of supply
A very key factor that directly affects the satisfactory supply of energy products in the European and Asian markets is the strikes that have been taken to liquefied natural gas (LNG) production terminals in Qatar, Dubai and elsewhere, resulting in the cessation or reduction of production. In addition, Iran's blockade of navigation in the Strait of Hormuz has also curtailed supply and raised concern.
Already, states and companies have declared a state of force majeure, i.e. inability - for external reasons not controlled by the same reasons - inability to execute fuel delivery orders to their customers.
For example, as announced through international news agencies, Shell, the world's largest liquefied natural gas trader, has declared force majeure for LNG cargoes it buys from QatarEnergy and sells to its customers worldwide.
Qatar, the world's second-largest exporter of LNG, last week announced the cessation of production at its facilities, which produce 77 million tons per year (mtpa), and declared force majeure on LNG shipments.
Other buyers of LNG from Qatar, including TotalEnergies and some Asian companies, have received force majeure notices and have informed customers that they will not sell them LNG from Qatar as long as the facilities remain closed.
Qatar's Energy Minister, Saad al-Kaabi, told the Financial Times last week that it would take "weeks to months" for deliveries to return to normal, even if the war ended today.
The price of Brent crude oil was trading on Friday around $102 and $103 a barrel, despite US President Donald Trump's efforts to keep them below $90, with constant contradictory statements about calculating the duration of the war.
Objections from Germany – the Netherlands, Norway and others
However, there are objections to the possibility of imposing some kind of ceiling on prices today. Germany and the Netherlands are among the countries concerned about the risk of reduced supply of natural gas or other fuels in the European market.
Norway, which produces and sells gas to EU countries and has benefited from the breakdown of trade relations between most European countries and Russia, also disagrees.
LNG tankers bound for Europe have already turned to Asia since the start of the war with Iran, where there is more demand and perhaps better prices can be secured for sellers.
