EU Commission set to propose potential ‘dynamic’ gas price cap

EU Commission set to propose potential ‘dynamic’ gas price cap

The European Commission is set to propose this week a last-resort “dynamic” price cap for natural gas in the European Union and mandatory limits on the degree to which traded prices can fluctuate in a single day, according to a draft proposal.

The EU is seeking to wean itself off Russian fossil fuels, but Moscow has in past months largely cut the bloc off from its gas pipelines, spiking prices and leading to supply concerns.

Under the proposal seen by Reuters, which will need to be agreed by EU governments, the European Agency for Cooperation of Energy Regulators (ACER) would be charged with producing a price benchmark by March 23 for liquefied natural gas, of which the EU is buying more.

The Commission is recommending potential interventions in the Dutch Title Transfer Facility (TTF) price that is widely used in Europe for contracts and hedging.

The EU executive would “as a last resort” propose establishing a market “dynamic” price at which natural gas transactions can take place in the TTF spot market under specific conditions.

The measures should not affect security of supply, nor lead to an increase in gas consumption, nor affect the orderly functioning of energy derivative markets, the draft said.

EU governments would have to agree to this and it would last for no longer than three months. Other EU gas trading hubs would be linked to the corrected TTF spot price via a dynamic price corridor.

The Commission’s draft proposal also says EU trading venues should by January 31 have to set a limit on the degree to which front-month energy derivatives can move up or down in a single day.

The proposals will need approval by EU governments, which have bickered for more than a month since the Commission first proposed a price cap only on Russian gas in early September.

EU members such as Germany, Austria and the Netherlands have said price caps could lead to a shortage of gas and fail to incentivise energy saving.

Others have backed broad price caps. Belgium, Greece, Italy and Poland want a price corridor for wholesale transactions, which would mean a price range with a central value below the market price.

EU leaders are set to debate options later this week.

The EU Commission’s proposal also includes the idea of joint gas purchases, a solidarity mechanism to avoid sharp disparities in supply across the bloc and a push to reduce gas demand. [Reuters]

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