Brussels proposes gas price cap ‘last resort’ to limit price caps

Brussels is preparing for “last resort” measures to curb gas prices, as the European Union seeks to ease the bloc’s energy crisis and prepares for greater supply challenges next year.

According to a draft European Commission proposal seen by the Financial Times, the EU should be able to intervene in markets and set a “maximum dynamic price” at which gas transactions can take place at the Dutch Address Transfer Facility, a reference standard for gas traded in the bloc.

The plans follow an extraordinary meeting of EU commissioners on Sunday and are due to be formally presented after the bloc’s second meeting of the executive body on Tuesday.

The document said the mechanism would only be used as a “last measure” if gas prices reached unsustainable levels, and should not increase gas consumption or affect flows within the EU.

She added that any emergency cap should only last three months.

An EU diplomat described the package as “historic” in its ambition. “If you try to narrow down what this includes, that’s huge.”

Gas prices on the fund exchange are more than 200 percent higher than they were in October 2021 due to Russia’s pressure on gas supplies to the European Union – in retaliation for the bloc’s sanctions against Moscow and support for Ukraine.

Energy-intensive industries have already closed hundreds of factories across Europe, while an increase in energy bills is fueling decades-old high inflation.

Next year could be even more difficult if Russian supplies, now less than a quarter of what they were, are completely cut off and energy demand from China, whose industries have been curtailed due to Beijing’s non-proliferation policy, recovers.

The draft proposal emerged as member states prepare for a summit in Brussels on Thursday and Friday aimed at finding solutions to curb the crisis. EU capitals have been at odds over how best to deal with rising energy prices together, with the issue of capping gas prices proving particularly controversial.

Germany, the Netherlands and Denmark claimed that market intervention would increase consumption by lowering prices at a time when gas savings were essential. But other EU countries fear that further increases in energy prices will fuel social unrest.

Italy, Greece, Poland and Belgium were among the member states that made proposals for a price cap mechanism last week.

A senior EU diplomat said using fund prices as a reference gives “clarity and predictability” to companies. Member states wanted to ensure that the committee adhered to a tight timetable for putting the new rules into effect.

The committee’s draft proposes that the fund’s gas price cap operate in conjunction with other measures aimed at lowering prices, including mandatory gas co-purchasing.

The EU is already negotiating with Norway, which is now the bloc’s largest supplier of gas, to try and cooperate to cut costs.

Other proposals aim to reduce volatility in energy derivatives markets, enforce cuts in gas consumption and create a new long-term LNG standard.

Brussels has also pushed EU capitals to reach agreements with their neighbors to supply power in the event of a power outage. The document said only six of “more than 40” such deals had been concluded so far. She said compensation for a neighbor’s supply of gas, for example, should be determined by the average market price of gas over the previous 30 days.

However, industry critics questioned why non-state-owned companies would agree to sell gas at a set price in the middle of a supply emergency, when the cost of replenishing their stocks would rise. There are concerns in the energy sector that market intervention may eventually exacerbate the supply crunch.

The European Commission said it had not commented on the leaked proposals.

Video: How Putin held Europe hostage to energy | FT . power supply

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