NEWS

Rift over gas cap looms over EU energy crisis plans

Rift over gas cap looms over EU energy crisis plans

EU energy ministers meet in Brussels on Thursday to approve the latest set of emergency measures to mitigate an energy crisis, but the plans risk being eclipsed by disagreements over whether and how to cap gas prices.

On the table are new draft laws to speed up permitting procedures for renewable energy sources, and to launch joint gas purchases for the 27 EU countries.

Poland, Belgium, Italy and Greece threatened to block these if the package does not contain a gas price cap as well. A small but powerful camp led by Germany is opposed to a cap, however, saying that would prompt suppliers to sell elsewhere.

Europex, the association of European energy exchanges, was among market participants to criticize plans for such an intervention.

As temperatures drop on the continent ahead of the winter, the ministers will have another go at the matter that has divided the bloc for many months.

The European Commission, the EU executive, has so far proposed applying the cap to month-ahead derivatives on the Title Transfer Facility (TTF), the Netherlands-based gas exchange that serves as Europe’s price benchmark.

It would not affect over-the-counter (OTC) trade, which the Commission said was a safety valve for critical deliveries while being unlikely to take over any major share of trade.

The proposed mechanism would get activated if there was an extreme jump in gas prices in Europe without a similar move on global markets, meaning the EU would diverge from global liquefied natural gas prices (LNG).

The second condition is key to continue attracting LNG supplies to Europe, according to the Commission. As an example of such extreme market behavior where the proposed cap would apply, the Commission has pointed to TTF price spiking last August while global markets were relatively stable.

The EU’s Agency for the Cooperation of Energy Regulators (ACER) would monitor markets daily and if here was a price spike diverging from global markets, it would inform the EU executive on the same day and the cap would take effect automatically.

The Commission would have the power to suspend the cap instantly should it bring about unintended negative consequences for the bloc, including in terms of security of supplies.

Otherwise, the Commission would stop the mechanism if it has served its purpose or at least one of the two conditions for its activation were no longer in place.

The Commission said the cap would be a “last resort mechanism” primarily meant as a deterrent. It has not yet said for how long it would be available. It said it would not be proposing a specific price ceiling or a corridor.

It also said that the proposed market intervention was not directly affecting any existing long-term contracts.

For related legal concerns, it pointed to a decision last week by international arbitration in Stockholm ruling that Finland’s energy provider Gasum was not obliged to pay Russian gas supplier Gazprom in rubles. [Reuters]

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