Energy Crisis

EU energy package talks paralyzed by gas price cap rift

EU energy package talks paralyzed by gas price cap rift

Photo: European Union

Published

November 25, 2022

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Published:

November 25, 2022

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EU energy ministers found common ground on most proposals for gas market reform, but the sticking points in talks about a price cap have prevented the formal adoption of the package. After several delays regarding the initiative, the panel is scheduled to meet again on December 13 and come up with a compromise.

New rules will enable and partly obligate European Union member states and energy companies to purchase gas jointly so that they don’t outbid each other, the Council of the EU said after a meeting of energy ministers in Brussels. Also, they agreed to develop a complementary price benchmark that would take the role of liquefied natural gas or LNG into account. Namely, gas contracts in Europe are usually indexed to the main gas exchange, the Title Transfer Facility (TTF), which doesn’t reflect LNG valuations enough.

The third success was the proposition for further solidarity measures and rules for sharing gas between member countries in cases of emergency. The negotiations on some of the gas market reforms were initiated long before the current war in Ukraine and they were intensified after Russia’s invasion.

But the package as a whole depends on one crucial element: the price cap. After the national governments and EU institutions went back and forth with various options, the European Commission proposed EUR 275 per MWh as the ceiling for the front-month TTF derivative settlement.

Conditions to trigger price cap may never be met

However, the limit would only be introduced only if the price is higher than that for two weeks. The second condition is that the TTF European Gas Spot Index is at least EUR 58 per MWh higher than the benchmark LNG price for the last 10 trading days before the end of the two-week period.

Greece, Poland, Malta and Belgium see the proposed ceiling as too high and the conditions for applying the mechanism almost impossible to meet

“The intention of the market correction mechanism is to intervene when the TTF gas price is no longer reflecting the market fundamentals. This is why we have introduced the second condition, which is crucial to ensure that we continue to attract LNG cargos to replace the lost pipeline volumes of Russian gas,” European Commissioner for Energy Kadri Simson said.

According to news reports, Greece, Poland, Malta and Belgium opposed the proposal with the argument that the ceiling is too high. Several ministers said the conditions are set in a way that the mechanism may never be triggered.

Bulgaria proposed to lower the cap to EUR 102 per MWh or EUR 128 per MWh, while Greece claimed that a level between EUR 150 per MWh and EUR 200 per MWh is realistic.

Some EU countries are against price cap to begin with

Another camp of countries, such as the Netherlands, fear that capping the price of gas would drive investments and supply elsewhere. There are also concerns that such a measure would incentivize gas consumption at a time when energy savings are crucial.

The Council of the EU at least agreed to set so-called circuit breakers, a mechanism that would limit daily price movements.

As for pooling demand, member states would be obligated to jointly purchase at least 15% of their individual gas storage filling quotas for 2023 or 13.5 billion cubic meters in total.

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