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Thursday, Feb 02, 2023

The European Union makes final push for gas price cap deal this year

The European Union makes final push for gas price cap deal this year

European Union nations’ energy ministers meet in Brussels on Monday in an effort to agree a cap on gas prices, an emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.
National leaders last week urged their ministers to approve the cap on Monday to finalize a policy that has been debated for months without agreement despite two emergency meetings.They are now considering a new compromise proposed by the Czech Republic, which holds the EU’s rotating presidency.

The draft, seen by Reuters, would trigger a cap if prices on the Dutch Title Transfer Facility (TTF) gas hub’s front-month contract exceed 188 euros per megawatt hour for three days - far lower than the 275 eur/MWh originally proposed by the European Commission last month.

Roughly a dozen countries, including Belgium, Poland and Greece, have demanded a cap below 200 eur/MWh to tackle the high gas prices that have inflated citizens’ energy bills and stoked record-high inflation this year after Russia cut off most of its gas deliveries to Europe.

“This is about our energy future. It’s about energy security. It’s about how we have affordable prices, that we avoid de-industrialization,” said Belgian energy minister Tinne Van der Straeten.

But Germany, the Netherlands and Austria fear the cap could disrupt Europe’s energy markets and divert much-needed gas cargoes away from the EU. They have sought tighter conditions, such as an automatic suspension of the cap if it has unintended negative consequences.

“Nobody in Germany is against low gas prices, but we know we have to be very careful not to wish for the good but to do bad,” said German economy minister Robert Habeck.

Two senior EU diplomats said that pro-cap countries now appear to have enough support to approve the measure without the backing of Germany, Europe’s biggest economy and gas market.

If that happened, “we’d have to live with it,” Habeck said.

Under the latest proposal, once triggered, the EU cap would prevent trades being done on the front-month to front-year TTF contracts at a price more than 35 eur/MWh above a reference level comprising liquefied natural gas (LNG) price assessments.

The EU price cap would not drop below 188 eur/MWh, even if the LNG price fell to far lower levels. If the LNG reference price increased to higher levels, then the EU cap would move with it, while remaining 35 eur/MWh above the LNG price - a system designed to ensure the bloc can bid above market prices to attract scarce fuel.

The fate of other EU energy policies is tied to the cap.

Countries have twice delayed approval of faster renewable energy permits, pending a deal on the cap.

Ministers will also attempt to approve their negotiating position on a new EU law to cut planet-warming methane emissions. Documents seen by Reuters show some countries are seeking to weaken the proposed rules.

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