EU energy ministers agree to cap gas prices before winter


London
CNN Business

Europe has agreed to a cap on natural gas prices, after months of debate over whether the measure will protect European households and businesses from extreme price hikes as temperatures plummet.

At a meeting on Monday, EU energy ministers agreed to activate a cap on the price of natural gas futures per month on the TTF (the bloc’s benchmark gas exchange) at €180 ($191) per megawatt hour if it exceeds this level for more than three consecutive business days.

The cap will also apply to gas trades from three months and the previous year, and will remain active for at least 20 business days once activated. It is scheduled to enter into force on February 15 next year.

“We have the agreement,” Jozef Síkela, deputy prime minister of the Czech Republic, told a press conference on Monday. The Czech Republic currently holds the Presidency of the Council of the EU.

The maximum price is well below the cap of €275 ($292) per megawatt hour originally proposed by the European Commission last month.

The cap would also be triggered if prices were at least €35 ($37) higher than the benchmark liquefied natural gas (LNG) price during the same period. Prices for LNG, a liquid, refrigerated form of gas that can be transported by tanker, are closely linked to prices for natural gas in Europe delivered by pipeline.

Síkela described the cap as “temporary, effective [and] realistic mechanism that will protect citizens and businesses from the excessive gas prices we’ve seen this summer.”

“It is not a fixed limit, but a dynamic one,” he added.

The cap is the latest in a series of measures agreed by the European Union this year to stem an energy crisis sparked by Russia’s invasion of Ukraine that has pushed up prices and fueled the highest inflation in decades.

Gas prices rose to a record high of around €345 ($367) per megawatt hour in August, after Moscow cut gas deliveries to the mainland. TTF gas futures fell 5% on Monday to €107 ($114) per megawatt hour.

Other EU measures have included gas storage requirements and a maximum price of $60 a barrel for offshore Russian oil.

Despite Monday’s political deal, analysts and traders remain concerned that the mechanism could backfire by pushing up prices and worsening potential supply shocks.

Germany, the bloc’s biggest economy and one of its biggest importers of natural gas, had been the most resistant before Monday’s announcement.

“Gas traders would likely liquidate short positions and stop selling futures if they fear the rupture could be triggered imminently, fearing the resulting losses,” Eurasia Group analysts said in a note on Monday.

After the announcement, a spokesman for the Intercontinental Exchange, which operates the TTF, said it had “consistently expressed our concerns about the destabilizing impact of a [price cap] will have on the market”.

The spokesman said the exchange was reviewing the details of the new proposal and “yes [it could] continue to operate fair and orderly markets for TTFs from the Netherlands.”

Trade under the FTT will continue to operate as usual for the foreseeable future, they added.

Faced with concerns, Síkela said the cap could be “automatically deactivated” in several cases, including when gas consumption across the bloc is high, if trade on the FTT declines or if quarterly LNG imports fall .

The proposal still requires a “qualified majority” to apply, meaning 15 countries representing at least 65% of the European population must agree.

Leave a Reply

Your email address will not be published. Required fields are marked *